Chapter 141 - Doing the Doing: The Incredible, Improbable Business Journey of Alan McKim and Clean Harbors
Today’s Chapter is based on the book “Doing the Doing: The Incredible, Improbable Business Journey of Alan McKim and Clean Harbors” by Alan McKim.
Alan McKim is an American businessman best known as the founder, chairman, and former CEO of Clean Harbors Environmental Services, Inc., which is North America’s leading provider of environmental, energy, and industrial services. He founded the company in 1980 starting with one truck and four employees and grew it into a global, multi-billion-dollar enterprise with over 20,000 employees and numerous locations worldwide.
Here’s what I learned:
Cash is King
“Never take your eyes off the cash flow because it’s the lifeblood of business.“
— Richard Branson
Alan McKim’s tenure at Clean Harbors teaches the indispensable lesson of financial discipline, particularly the mantra that “cash is king”. Throughout his career, he prioritized cash flow over profitability, understanding that liquidity is what fuels operations and enables growth. This prudence helped McKim navigate through Clean Harbors’ crises.
McKim mentions that when he started his company, he “knew very little about the business side of things. I was great on the oil operations side—I must have personally cleaned the inside of over a thousand oil tanks during my young career—but I did not have any real understanding of a financial statement. Balance sheets? P&Ls? Pre-tax profits? Depreciation? Cost of goods? Sure, I’d heard the words bandied about time and again, but I did not really know what they were all about. I was a tried-and-true, hands-on operations guy, not an accountant. Honestly, I let the accountants tell me if we were making money or not, though I did watch the cash like a hawk, because that was the lifeblood of the company. Without cash, it didn’t matter if you were profitable or not. Cash is always King!”
“At the birth of any business, cash is always tight. It is essential to have money at hand to pay your employees, vendors, and operating costs. No matter how well your company is doing, even if you’re showing a profit on your books, you’re out of business if you run out of cash and can’t borrow it fast enough to fuel the engines. It’s why they always say, “cash is king.””
— Alan McKim
This principle was tested during the company’s most difficult times. When Clean Harbors faced a dire cash crunch and couldn’t make payroll, McKim made a move that defies conventional business wisdom but underscored his profound commitment: he personally borrowed against his own stock to fund the company’s payroll. McKim explains that he had “a crazy belief that we would succeed, as did plenty of my colleagues in the company. So, many of us took pay cuts and sacrificed to keep the ship afloat. Moreover, when it got to the point where we couldn’t make payroll anymore, I did what every business book tells you never to do; I borrowed on my own stock holdings and then lent the company money from my borrowed funds to make payroll. Remember, we were a public company at this point, thus making this kind of move was unheard of; but I did it anyway.”
Through this example, it is fair to understand why McKim is so focused on cash flow as he wanted to make sure that he could take care of the company’s payroll. In fact, due to his humble beginnings, he wanted to make sure that all of his employees were paid in time even during market downturns. He mentions that “Throughout my career, I have never forgotten how most people live and how important it is they can rely on us to be paid on time and accurately.”
Furthermore, another reason why McKim believes in having a good cashflow is because he understood that cash is necessary for a company to grow. Without cash, it doesn’t matter how many opportunity for growth as you cannot invest into it.
“One thing I hope I’ve adequately emphasized in this book is a guiding and enduring principle of mine, to remember the simple mantra that “cash is king.” No matter how great the opportunity for growth may be, the most important aspect of a business is to have the money to keep operating and moving forward. In this world of tech startups, the focus seems to be on market share alone, with no income model in mind. Sometimes I think the people who get involved with these businesses don’t understand cash flow and how vital it is to the lifeblood of a company.”
— Alan McKim
This reminds me of the importance of having a cash reserve and patience to succeed in business and in investing. As we have previously learned from Seymour Schulich, taking a delayed gratification approach helps in this matter. He challenges us to adopt a long-term mindset, focusing on sustainable growth rather than quick wins. And in business, Schulich recommends in having a big cash reserve since you’ll never know when you have an opportunity to strike gold. As he states, “One other very important aspect of patience in business is maintaining a cash reserve, so you have the money on hand to exploit those opportunities when they occur.” This advice is particularly relevant in times of economic uncertainty, where having liquid assets can provide the flexibility needed to seize advantageous opportunities.
“The best opportunities come to those with patience, courage, and a cash reserve.”
— Seymour Schulich
Similarly, Charlie Munger is also a prominent figure that has always been a big proponent of delayed gratification. He believes in the importance of patience and being prepared to act at scale when a great opportunities arise. As he once said, “If you’re glued together and honorable and get up every morning and keep learning every day and you’re willing to go in for a lot of deferred gratification all your life, you’re going to succeed.”
Munger gave a great example of delayed gratification: How he earned $400 million from reading Barron’s magazine. Munger had been reading Barron’s magazine for more than fifty years, but found only one actionable idea in it. He bought a cheaply valued auto parts company at $1 per share and sold a few years later at $15 per share, earning him $80 million in profits. Munger then gave this $80 million to Li Lu who turned it into $400 million. This story is a great example of the significance of extreme patience, deferred gratification, and the display of strong decisiveness at the right moment.
“People who arbitrage time will almost always outperform. The first order thought of instant gratification is a crowded path, ensuring mediocre results at best. Delayed gratification, which requires second order thinking, is less crowded and more likely to get results.”
— Shane Parrish
Finally Warren Buffett is also another prominent investor who encourages having a large enough cash stack in order to be well prepared when opportunities come around. As Parrish explains, “Right now, as of today, I think as of last quarter, he’s got 150 billion dollars on the balance sheet. And so what he’s always doing is everybody thinks he’s out of touch and he looks like an idiot. But he always wins because no matter what the outcome is, he wins. If the stock market goes up, he wins. If the stock market crashes, he wins because he’s put himself in a position where no matter what happens, he can take advantage of circumstances rather than having circumstances take advantage of him. And I think that that’s a key element we don’t realize. If you put Warren Buffett in a bad position where all of his options are bad, it doesn’t matter how smart he is, it doesn’t matter how Warren Buffett he is.”
Prioritize People
“A company’s employees are its greatest asset and your people are your product.”
— Richard Branson
Alan McKim’s success story also reminds us of a vital lesson of prioritizing people and building a strong company culture. McKim views employees not as mere resources but as the heart of Clear Harbors, emphasizing safety, loyalty and shared purpose. This human-centric approach built a loyal workforce that propelled the company through challenges, teaching us that investing in people yields dividends in the long run.
McKim explains that “All companies have a culture that defines how they do business. Our culture has certainly evolved through the years. In the beginning, when we were a small company and our employees were young and perhaps a little rambunctious, I would say our company culture was “work hard and play hard.” If you can’t come to work and enjoy what you are doing, then what in the hell are you coming in to work for?”
This “work hard and play hard” mantra allowed for employees in the company to built a strong bond together. As McKim mentions, “During the working day, everyone had each other’s back, working hard but also having fun. We were professional, and that was very important, but we were not stiff. We razzed each other mercilessly, heckled, scolded, and laughed loudly. And then, after a long week, we’d go out together and have a beer and pizza, joined by spouses or significant others. A true team spirit.”
“My philosophy is that we are all in this together. We are building Clean Harbors collectively, and the long hours involved naturally developed a tight bond between us and within the company. Working for Clean Harbors should be energizing and exciting, I always reasoned, since we were all building our careers and dreams together.”
— Alan McKim
Furthermore, considering the company was in waste management industry, the employees’ safety was primordial, as they are the company’s most important asset. McKim believes that as a CEO, the safety of his employees is his own personal responsibility. He explains that “Protecting our employees has always been at the top of the Clean Harbors agenda, and the few serious incidents that have occurred during our 40 years in business serve as a continual reminder that we take our responsibilities very seriously when it comes to workplace safety. In other words, at Clean Harbors, the actionable oversight for safety comes from the top.”
Similarly, McKim reiterates that “on every work site in every plant and at every office, in all of our 750 locations, we have safety meetings each morning with all the employees at work, no matter what job we’re performing. This includes senior management. If ever there is a specific safety issue, we fix it or shut down the work site until it is addressed. Indeed, any employee can pull out the Stop Work Authority Card at any time, day or night.”
“Our employees are our most valuable assets. I’ve always believed that cultivating the best workforce possible, investing in them, training them, keeping them safe and fit, and inspiring them to be committed to Clean Harbors, is a win-win for us as well as our employees.”
— Alan McKim
This reminds me of what we have learned from Richard Farmer, who believed that Cintas’ ultimate competitive advantage is their corporate culture. He explains that “Our culture is rare, invisible, and difficult—if not impossible—to replicate.Competitors can copy our sales material, our products and even some of our systems, but they cannot copy our culture.”
“I swore that I would do whatever it took to develop obvious and authentic competitive advantages. Today, we recognize that our most significant competitive advantage is very rare, intangible, and impossible to replicate. I’m talking—again—about our corporate culture.”
— Richard Farmer
However, in order to implement a great corporate culture at Cintas, it was primordial for Farmer to create a vision for the company to lead his employees. Cintas’s vision was the following:
1. To be known as a company that insists on absolute honesty and integrity in everything we do.
2. To have a highly talented and diverse workforce which is harmonious and compatible with our corporate culture.
3. To have a uniform rental presence in every city in the United States.
4. To leverage that field presence to provide our customers with additional products and services.
5. To expand our uniform business into segments of industry we don’t normally service (such as hospitality, transportation, restaurants, and so forth).
Farmer explains that it is important for a company to have a vision and to share it to its employees. In fact, he explains that “employees are not just doing a job. They’re sharing a vision. If they share a vision, a job is more than a job.”
He uses the following anecdote to explain the importance of having a common vision among a company:
“I used to tell the story about a man walking down the street in the middle of a big city and how he came upon a construction site. Bulldozers and earthmoving machines were busy on the site. People were working hard. He came across three men in a ditch. He asked the first man, “What are you doing?”
“I’m digging a ditch,” the first man said.
Our protagonist asked the second man, “What are you doing?”
“We’re digging a ditch for the water line for that building going up over there, the second man said.
Our protagonist asked the third man, “What are you doing?”
The man looked up and replied, “We’re building a cathedral. It will be a big beautiful cathedral with five big tall spires and beautiful stained glass windows. It will seat 500 people. It will be the most beautiful church in this city. That’s what we’re doing.”
Every time I’d tell that story, I’d ask my audience which of those men do you think is most motivated. Obviously the man building a beautiful church will be more committed than the others because he shares a vision. He may be in a ditch, but he is proud of what he is doing. That simple story demonstrates why it’s important to have a vision and share it with everyone.”
— Richard Farmer
Doing the Doing
“Ideas are worth nothing unless executed.“
— Steve Jobs
Finally, Alan McKim’s story cannot be understood without knowing about his rough childhood. As a matter of fact, his entire business philosophy is built on a foundation of tangible action and a resourceful mindset that sees potential where others see only waste. This “doer” mentality, the very namesake of his book, was forged in his youth, where he learned the value of hard work and the art of making something from nothing. McKim mentions that “Ever since I was a young boy, I possessed a keen curiosity and desire to tinker with anything I could get my hands on. Always mechanically inclined, I felt an innate urge to take things apart and hopefully put them back together again.”
But, this innate curiosity was also paired with an indefatigable work ethic. McKim was never afraid of getting his hands dirty, a trait that would become a hallmark of his leadership style. He didn’t just manage his business; he understood it from the ground up, literally from the bottom of an oil tank. Before starting Clear Harbors, McKim worked as an employee at a waste management company where he “learned about cleaning oil tanks, I experienced the emergency response business, and I got lessons on how to turn dirty oil into recycled oil that could be resold for a profit.”
This hands-on experience was crucial. When he started Clean Harbors, he wasn’t a financier or a theorist; he was an operator. For example, his undercapitalized start-up couldn’t afford a new vacuum truck, so he built one himself, relying on the skills honed in his father’s garage. This resourcefulness is a powerful lesson. It teaches us that deep, practical knowledge and a willingness to “do the doing” yourself are often the most significant competitive advantages a founder can have. McKim didn’t just build a company; he built the very equipment that would power its early growth, embodying the principle that true understanding comes from action.
Another important skill of McKim is his ability to see potential value where others couldn’t. His early experiences taught him a fundamental truth that would define his company’s strategy: one person’s trash is another’s treasure.
“The real lesson was that, throughout my whole career, I have made a business out of taking other people’s trash and making it into something of value. Whether it was at the car junkyard, the landfill, or digging for waste brass from waste foundry sand, in a roundabout way, this is what led me to where I am today.”
— Alan McKim
For example, this ability of his was extremely important when Clear Harbors started making acquisitions. He had a great insight in identifying hidden value in distressed companies or assets that large corporations were discarding. McKim explains that “I observed that big companies and investors were buying companies willy-nilly and then selling off the seemingly unprofitable parts of their acquisitions. But, where they saw failing parts or pieces of businesses they did not want, I saw assets that could be rehabilitated with relatively little investment and attention.”
This reminds me of Lawrence J. Goldstein’s investment philosophy of finding opportunities that are overlooked or ignored by others. As a matter of fact, Goldstein believes that great returns can be done by investing in small, closely held companies trading on the pink sheets, lacking analyst coverage, or characterized by low liquidity; all attributes that would scare away institutional investors. By targeting these types of neglected securities, Goldstein can take advantage of market inefficiencies and is able to purchase companies at a significant discount.
His strategy is often contrary to the common behaviour among institutional investors, which is why it is so successful. He explains that “Contrary to popular belief, institutional investors are not interested in making money, earning income, protecting purchasing power or preserving capital. Rather they are more interested in being in the pack of other similar institutional investors. If everyone loses money it is fine for the institution to lose money; they just do not want to lose the most and be alone at the bottom of the list of their peers.”
“As usual, you can look for us to march to the beat of our own drummer and not in lockstep with the band that is so attune to the market averages.”
— Lawrence J. Goldstein
This herd mentality creates opportunities in the less visible segments of the market, where Goldstein finds stocks that others overlook. This advantage also stems from the lack of competition in these markets, allowing Santa Monica Partners to acquire positions below their intrinsic value. Goldstein mentions that “We feel we have a large advantage because those neglected areas of the market are where we hunt. This allows us to find and buy into companies when they have been overlooked by others. When those companies are discovered by others, significant multiple expansion can occur.”
This philosophy of looking for overlooked companies off the beaten path quickly became one of Santa Monica Partners’ trademark approach to investing. As Goldstein mentioned, “Since we have used this phrase to describe our investment philosophy for so long, over 30 years, you may have noticed starting this past July we began to display the phrase overlooked or ignored by otherwise intelligent investors as our trademark wherever the name of our partnership appears.”
Beyond the Book
Read "The Cookie Monster Knows More About Willpower Than You" by Farnam Street
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Love this perspective! McKim's insight on cash flow as the 'lifelife' is essencial for survival. It makes me consider the delicate balance between maintaining liquidity and making bold, long-term investments in future tech or R&D for innovative, sustainable growth. What a tightrope to walk.