MANY of the companies I discuss frequently here are not just good businesses, but obviously good businesses. Ametek, Asplundh Tree, Cacique Cheese, Constellation Software, Costco, Danaher, Ferrari, Hermés, Moody’s, Moutai, Roper Technologies, Starbucks, Tencent, Transdigm, and Visa are wonderful and you don’t need to be further convinced of that fact, although they are fun to write about. 

​

Notwithstanding regulatory or macro pressures that may sullen the outlook at certain points (Chinese regulation in the case of Tencent, the 90s antitrust fiasco and Balmer era in the case of Microsoft, and interchange regulation in the case of Visa) these companies are all fantastic for pretty much the same reasons they were 10 or 20 years ago, maybe with the exception of Danaher who has completely transformed itself into a pure play life sciences company after spinning off its industrial assets. But for the vast majority of the companies I mentioned above, the core value drivers, end markets, and sources of competitive advantage remain largely the same. A description of Costco would not read that differently from a description of Costco today.

​

There’s another class of companies that at one point in time were thought to be pretty meh but then go on to earn insane returns. Whether by design, accident, or both, they cannonball into an enormous new pool of value that would have been nearly impossible to predict ten years in advance, as much as some people like to claim otherwise after the magical gift of hindsight has allowed them to see the light. Amazon in the mid-2000s come to mind.

​

Investors see where Amazon is trading today and berate themselves for not buying it in 2005 when the business was trading for a measly $20 billion. But Amazon is not only a different bet today than it was in 2005, but different in ways that were completely unknowable at the time. Central to most long pitches back then was around capturing more of the market share for books and CD sales from Barnes and Noble and other traditional big box retailers and then continuing to expand into other product categories. But Amazon 100x’ed over the last 20 years for reasons mostly unrelated to its core retail business. Who could have foreseen the nearly trillion dollars of value that was created by AWS?

​

Lastly, there are some companies that are dismissed from consideration outright either because the sensitivity of their earnings is incorrectly conflated with business quality, they sell a commodity, or they fail to meet the “quality” heuristics. They’re not capital light, revenue is episodic and non-recurring, and they have minimal pricing power. The same way that Google is just “known” as a great company, these companies/industries are just “known” to be mediocre… until they aren’t. There often reaches a point in an industry’s life cycle where investors finally realize that the market structure, revenue mix, operational excellence, or regulation has changed in such a way that historically lackluster returns are set to inflect much higher.

​

The construction equipment rental industry is a perfect example. The U.S. construction equipment rental industry was a decades-long destroyer of capital all throughout the 20th century and leading up to the GR in 2008. Thousands of local mom and pop dealers across the country barely eeked out a living. Rental equipment is an industry in which even expert observers assume there’s no chance to thrive. As Munger famously says in Poor Charlie’s Almanack:

​

There are two kinds of businesses: The first earns twelve percent, and you can take the profits out at the end of the year. The second earns twelve percent, but all the excess cash must be reinvested — there’s never any cash. It reminds me of the guy who sells construction equipment— he looks at his used machines, taken in as customers bought new ones, and says, ‘There’s all of my profit, rusting in my yard.’ We hate that kind of business.
 

What is the Rental Equipment Industry?

​

Rental yards are generally found in the sketchy parts of town. They’re filled with heavy, expensive, dirty machinery that look old after just a few uses. In a typical rental yard you might find an excavator, a portable heater, a backup generator, or a bunch of Porta-Potties. It was known as a shitty industry. Until it wasn’t.

​

The business is built on the fact that renting is often cheaper than buying. If you use the equipment sporadically, a few days or weeks at a time, it makes no sense to own it. As rental companies like United got better at managing more categories throughout the early 2000s, the reasons to rent multiplied. 

​

A good example that shows the benefit of renting vs. buying your own equipment:

​

Consider a large office building in a city like Chicago. The floors need to be cleaned with a polisher several times a year. Owning that floor cleaning equipment might not be that expensive on the surface. But… You need a place to store it during the other 99% of days its not being used. This requires a closet in a crowded city where real estate is very expensive. You also need someone to maintain the equipment, to know where to get any parts that need replacing, to know how to fix it, etc. That’s a hassle, and it represents a series of hidden expenses that companies increasingly don’t need to own.

​

The prevailing view at the time was that the industry was a bit like the airline industry: the plane is expensive and is going to fly no matter what, so you might as well sell tickets really cheap to make sure all the seats are filled, especially when demand falls. 

​

Similar to an airplane, rental equipment doesn’t make money if it’s not rented. In the equipment rental industry this is known as “utilization.” Which basically just means the percentage of time that your equipment is in-use/rented out to customers. At least for airlines there is a bit of a barrier to entry in the form of federal regulation and licensing. Rental equipment has essentially zero barriers to entry. Anyone with financing can start a company, buy equipment, and rent it out. 

​

Equipment rental is essentially asset sharing, old economy style. It’s quite different from the recent versions created by companies like Uber and Airbnb. United Rentals does not shy away from owning assets. Software and hardware management are core to the entire business, and they have employees, not contractors doing the actual hard work. 

​

How United Rentals Built a Towering Competitive Advantage the Hard Way

​

With interest rates near zero coming out of the recession in 2008, United Rentals took out a ton of low-cost debt and consolidated the industry. They quickly raced to accumulate all the benefits of scale, mainly procurement advantages and branch density, as they acquired their way to ~30% of the market, up from just 7% in 1998.  They did it by relentlessly executing a roll-up strategy that built a connected company out of a series of independent branches. 

​

From the outside the business sounds simple – buy equipment, rent it out, collect money. But in reality, the business is a logistical nightmare. If the required equipment is late or doesn’t work, it can cause millions of dollars in delays. A successful equipment rental company must manage all of the following, at scale:

• Picking up and delivering equipment

• Equipment repair and maintenance

• Customer service

• Customer acquisition

• Fleet management

 

Improvements in logistics brought several early wins on United’s path to operational improvement. This was no easy feat, handling deliveries for thousands of pieces of heavy machinery to customers across the entire nation is quite complicated. Consider the following: 

 

You are trying to route dozens of deliveries a day into Manhattan. Even experienced truck drivers with simple loads despise driving in the crowded city, and for good reason. Lots of drivers just avoid New York City altogether. There is likely to be a lot traffic. You could miss a turn and end up with an hour delay. All of the bridges have different height limits. The streets are incredibly narrow. You can get towed in the span of a minute if you park in the wrong place. One wrong turn and you're stuck.

​

With equipment rental, the problems go way beyond just finding the ideal driving route. Different pieces of equipment fit poorly in a truck with other equipment. Traffic patters are constantly changing. You show up to pick up the equipment and the customer says he wants to keep it for longer. After you leave he calls and changes his mind. Equipment out in the field breaks and needs maintenance immediately. The business is way more complex than a FedEx-style hub and spoke delivery system. 

​

The complexity of all these processes are even more magnified as you expand into different types of equipment categories. United Rentals was so successful because they were able to do the hard blocking and tackling necessary to develop the tools and internal systems needed to manage that complexity as they grow from a collection of entrepreneurial small businesses into the undisputed leader in the industry. 

​

United Rentals Formation and Early History (1997 - Early 2000s)

​

United Rentals was founded as a roll-up in 1997 by serial entrepreneur Brad Jacobs. After dropping out of Brown in 1976 to start an oil brokerage trading firm, he started a roll-up of the garbage hauling industry which he eventually sold to Waste Management before founding United Rentals. Incredibly, Jacobs has founded SIX DIFFERENT publicly-traded billion-dollar companies that all pursued this same roll-up strategy: United Waste Systems (garbage collection), United Rentals (equipment rental), XPO, GXO Logistics, RXO (transportation and 3rd party logistics), and his new company QXO (building products distribution). 

Jacobs started United Rentals by purchasing six leasing companies and bringing the combined company public in 1997. They quickly acquired US Rentals in 1998, making them the largest US rental company, with annual sales of $1.4 billion and market share of ~7%. Jacobs went on to do ~200 acquisitions over the next five years. They used the classic thesis that underpins almost all roll-ups: 

​

• Back-Office Cost Savings. Having centralized IT, accounting, and billing is a lot cheaper then duplicating these efforts at every individual branch.

• Scaled Purchasing. Can get lower prices if you buy equipment in bulk. 

• Multiple Arbitrage. Smaller acquisitions are cheaper then the combined platform trades for publicly / can eventually be sold for.

​

Roll-Up Strategy Starts to Show Cracks (Early 2000s - 2008)

​

For the first decade of the millennium, United Rentals essentially operated like a typical Audax-style roll-up. It was a collection of semi-autonomous, un-integrated, somewhat related companies loosely pieced together. There was no unified systems, technology, or culture. In an industry like equipment rental where perfect competition basically erodes all profits, this was a real problem.

​

By 2007, the previous leaders had all left (Jacobs in 2003 and his successor Wayland Hicks in 2007). Mike Kneeland was named interim CEO and the company was put up for sale. In July 2007, private equity firm Cerberus Capital agreed to acquire United Rentals for $34.50 a share, valuing the entire company at $6.6 billion. After the LOI had been signed, the construction economy faced its worst downturn since the Great Depression and rental prices began plummeting. Cerberus played the stalling game while they watched the economy start to unravel, before officially pulling out of the deal and paying the $100 million break up fee in November. 

​

CEO Mike Kneeland was left at the altar and now had to lead a highly leveraged company whose demand was falling off a cliff. They had to sell off parts of their rental fleet at fire sale prices just to keep the company afloat and avoid declaring bankruptcy. 

​

United Hits it Stride in the Post-Recession Era (2008 - 2012)

​

Mike Kneeland is not a very well-known name among the cadre of celebrity CEOs. He likes it that way, and is known around the company as a humble, always polite, and a measured talker. These aren’t qualities that behoove lots of press clippings or media spotlight, but they were pivotal to United Rentals’ survival during the Great Recession. It was an ugly time for the industry, and United Rentals was no exception. Operating margins fell from 17% before the GR all the way down to 5% in 2009. The stock price had fallen from $20 to $3. 

​

The Power of Incentives

 

With the entire investing community expecting United to go bankrupt under its crippling debt load, Kneeland first had to stop the bleeding by cutting costs across the board. Up until this point, United hadn’t integrated any of their acquisitions. Outside of purchasing, there was no cohesive operations across the hundreds of small branches it owned across the country. The branches didn’t even share equipment with each other. The root cause of this bone headed mistake – incentives. Sharing equipment with another branch would hurt the individual branch’s profit, and by extension the branch manager’s annual bonus. As Munger says – always follow the money.

 

Kneeland began the task of building a cohesive culture by first revising United’s branch manager compensation methods. The main change was a shift in focus to national-scale customers, which made collaboration among the disparate branches a requirement instead of a hassle. The shift in strategy was also partly motivated by the recession. During the 2008-2010 downturn, larger customers were a lot less likely to go out of business given their scale and access to better financing. By becoming a one-stop shop for its customers, Kneeland was able to lock in long-term customer relationships by offering efficient, comprehensive service. 

​

The incentive changes were simple but powerful. Brad Jacobs and the rest of the initial founding leadership team hadn’t come from the rental industry. They hadn’t thought deeply enough about how shared goals can overcome the bad practices and excessive autonomy of independent branches. As a longstanding rental manager who knew the existing cultures and tricks, Kneeland was in a much better position to change them. 

​

Managers were used to being compensated on basis of EBITDA growth at the individual branch level. They were paid for revenue and profit growth. That’s it. This short sighted compensation scheme ignored perhaps the most important driver of long-term business success – return on invested capital. Managers were not being “charged” anything for the fleet they owned. This promoted simple, pro-growth decisions – buy more stuff and worry about utilization (renting it out) later. This incentivized managers to vastly underutilize their existing equipment, since buying another machine was a lot easier than trying to quickly repair a broken one they already owned. 

These incentives also resulted in a lack of equipment and customer sharing, which meant that one of the core competitive advantages of being the largest scale player in the industry was being completely ignored. Kneeland made simple changes to remedy this short-sightedness:

​

1. Return on Controllable Assets combined with a hurdle rate on new equipment purchases were the only metrics that mattered. This helped change manager’s behavior to reflect the fact that rental assets actually do cost the company money.

2. 70% of compensation for both branch and district managers would now be tied to district profits, not branch profits. This immediately connected employees and encouraged a culture of collaboration, instead of the every branch manager looking out for his own best interests. 

 

United Rentals Starts to Become a Well-Oiled Machine

​

With the incentives and compensation plan figured out, Kneeland then started investing heavily in a number of operational initiatives that had gone long ignored in the early fever of acquisitions. The crucial first step was putting millions into developing a world-class IT system. This was help improve long-term operational efficiency by reducing cumbersome paperwork, inefficient logistics and fleet management, and improve United’s pricing model. 

​

For years the equipment rental industry had suffered from an inefficient, anecdotal pricing dynamic. There was no system or method behind the madness. The branch manager basically relied on their individual experience and gut feel when quoting a price for rental contracts. The more experience I get working with different companies, industries and management teams, the more insane stories I hear that prove how informal large parts of the economy still are to this day.

​

Construction is probably the least “tech-forward” of any industry I’ve worked with. Contractors still do the majority of their business on paper forms, over the phone, and via check. Ten years ago the rental industry was drastically less formal. At the time, Sunbelt (United's main competitor) used paper notebooks to communicate its pricing to all its rental branches across the country. United Rentals was not much better. While they at least used mobile devices and not notebooks, they still didn’t have any sort of system for determining the price they should quote a potential customer. Branch managers “felt the pulse” of the local competitive landscape and priced accordingly. This is a nice way of saying they pulled numbers out of their ass. Pricing for a vertical lift could be $1,000 per day in Chicago and $3,000 in Minneapolis. There was zero method to the madness. With no cohesion among branches, there was no price discovery at the overall company level, which left them to leave millions of dollar on the table. Large customers would often play the branches against each other to negotiate a lower rate. 

​

Kneeland fixed this by creating an internal analytics team that created custom pricing software. United was now able to gather input from all its branches across the country in real time so that pricing decisions were backed by price discovery and hard data, not gut feel. 

​

This investment in technology did not stop at just pricing however. United also bought software that improved the repair shop and fleet logistics. Mobile technology had finally advanced to the point where field automation strategy and technology could be implemented across the entire company. This replaced paper forms with electronic documentation for order taking, contracts, insurance, and maintenance schedules, among others. These systems optimized the load size and routes for delivery trucks as well as reduced the time required for loading/unloading at the customer’s construction site. 

​

United was now able to track the efficiency and performance of drivers at the individual vehicle level. Lazy, careless drivers instantly stuck out like a sore thumb once they had enough data to appropriately benchmark how long the average route and load / unload time should take. Similar to the Amazon Prime drivers you see all over the place, United employees would now use mobile devices to take pictures of equipment at the time of delivery, which gave the company traceable reports of the equipment’s condition. 

​

Like most businesses, there was no comprehensive software system that had all the functionality United needed to manage its business, so they bought systems and mobile hardware from a variety of vendors. The important thing was that these new systems were a requirement, not a choice. Where many companies fail is they spend all this money on new software and then because people are naturally averse to change, no employees use it. Months of training time and millions of dollars go wasted. Kneeland had seen this story before. So he gave his employees a choice: use the new systems or find a job somewhere else. 

​

Designing and implementing these systems put United years ahead of its competition. This paid off in many ways:

​

Their customers were happier. The equipment was better maintained and was always on time.
Their employees were happier. While there was no doubt some headaches involved in getting used to the new systems, they ultimately made the field employee job much easier. No longer would they have to guess what they should charge customers, where in the lot they should be dropping off the equipment, or when they should bring in equipment to the repair shop. Plus happier customers are a lot more fun to deal with.
Their shareholders were happier. The company’s operating margin had been 17 percent before the financial crisis and nosedived to 5 percent in 2009. By 2013, it was close to 22 percent.

​

Kneeland knew early on his tenure that addressing large customer’s main pain points was a huge opportunity that United was uniquely positioned to capitalize on. Late deliveries bring tons of excess cost, a pissed off customer, and a lost opportunity for negotiating leverage on pricing. Rental equipment is typically ~1-2% of the total cost of building a large high-rise, but similar to my last post on electric heaters, if the equipment isn’t there or isn’t working all other more expensive processes are ground to a halt. High-wage union workers stand around waiting, the delays pile up, and the contractor (United’s customer) is pissed. 

​

To solve all these problems, United Rentals adopted a lot of the principles of continuous improvement that industrial manufacturers like Toyota and Danaher had perfected. They did a ton of “kaizen events,” which are basically a fancy Japanese term for a visual run-through of all the discrete processes that are involved in United’s business. The main goal of these kaizen exercises are to spot areas where things go wrong, trace them back to the root cause, and eliminate the source of the error. 

​

Did the order get taken correctly? Did the customer specify exactly what kind of setup they needed for that 40-foot boom lift? Did they know exactly what was needed, or would they have benefitted from a quick call to consult with an expert? Did the field worker make sure the order included the phone number of the Construction Manager AND the backup phone number in case they were busy at the time of delivery? Is it a cell phone or just the main number for the general contractor’s company? Is the delivery address updated? If it’s a large job-site, like most of United’s customers work on, where exactly should the equipment be dropped off? Which gate is the easiest to use? Are they expecting any other large deliveries at that time which may clog up the un-loading area? 

​

These are all simple issues on the surface, but one mistake on any one of them causes a cascading sequence of delays and an understandably angry customer. United’s operational excellence wasn’t just solved by implementing some fancy software systems and making their employees use mobile devices instead of paper. It came from making sure their customers were happy. They were able to do this consistently by putting in the hard, upfront, unsexy work to reverse engineer all the ways things were going wrong, and then adding steps to the process to make sure those things didn’t happen. Simple changes like putting all the common order form mistakes on a wall poster resulted in significantly less errors, and by extension much happier customers. 

​

But logistics isn’t just about taking orders. Unlike Uber, United Rentals actually owns fleets of trucks and has a massive base of employees to manage. If you can run a single truck on 15 routes a day and your competitors are only doing 5 routes, you’re gonna be a lot more profitable. Your revenue per employee is greater, the outside cost of hauling the equipment is lower, and customer satisfaction is much higher. This comes down to leveraging your asset base better than your competitors, getting more bang for your buck out of the same piece of equipment by being smarter in how you schedule and operate pickups and drop-offs. Again, the kaizen events were illuminating. Now, when a United truck enters the yard, it pulls up to the painted strip that the driver spray painted when he originally first dropped of the equipment. The equipment he’s picking up is already sitting there, ready to be loaded. He loads up the equipment in the truck bed, and drives off. Before, the driver would have to wander through the yard looking for different pieces of equipment. 

​

United Rentals ran hundreds of these kaizen events in the early 2010s. They were critical to the success of Kneeland’s tenure. They allowed United Rentals to finally have a common look and feel across all its branches, both for efficiency’s sake and for their customers who dealt with many locations across the country. Rather than hundreds of disparate cultures and processes, they found simple, common practices that they could successfully apply across all their branches. 

​

United Rentals Steps on the Gas with Large Acquisitions (2012 - 2018)

​

With the main internal operations issues largely fixed by 2012, Kneeland continued his offensive strategy by ramping up both the frequency and size of acquisitions. In 2012, they acquired their largest competitor RSC, then the second largest rental company in the country. They took advantage of the near zero low interest rates and financed the acquisition primarily with debt. Total leverage for the company rose sharply to over 4x debt to EBITDA. Unless you have a business model that's impenetrable like TransDigm, 4x leverage is pretty close to the maximum that investors will tolerate in a cyclical industrials business. Kneeland’s strategy was well-timed though, as the country was unlikely to go through a severe downturn so soon after the GR. From 2011 to 2018, United Rentals went on a tear, acquiring four of the ten largest equipment rental companies in the industry. These acquisitions brought them into new product categories, new customers, and an unheard of level of scale. 

​

Acquisitions brought more than simply scale. They offered product breadth and new avenues for even more growth, especially in the “specialty rental” segment. As the density of their dealer networks increased to accommodate more customers per area, delivery costs declined because routes become much more economical to service. Smaller competitors faced incredible difficulty. They either burned a lot of money trying to build out similar density within a specific region or engaged in a race to the bottom via price wars. 

​

Without the investment in systems, the complexity would have been impossible to manage. Without the focus on large customers that had diverse needs coming out of the recession, United would have never entered into certain highly profitable specialty equipment categories. The business strategy, new systems, and disciplined capital deployment all started to play off each other.

​

United Rentals had become a well-oiled, acquisition machine. Anyone with capital can overpay and buy a company. It takes a lot of hard work and real skill to successfully integrate operations and keep the employee base happy. United thrived at this. In all their acquisitions, they made employee retention the #1 priority without exception. Prior to getting bought by United, a salesperson might have had ~500 products he could rent out, and was usually focused on just the few most popular ones. Once acquired that turned into 4,000 products. Where United excelled was in making sure that good people didn’t quit from the shock and sheer complexity of their roles after being acquired. They allowed employees to work up their productivity slowly over time as they internalized all the codified steps that United had created to keep quality, safety, and revenues high. 

​

Extra product diversity ended up being a huge profit driver and point of differentiation in an industry where most people assume all the products are the same. Smaller competitors just couldn’t compete. United Rentals offered more products, lower prices, better service, faster turn around times, higher safety ratings, etc. The same people who couldn’t manage the additional complexity while independent were equipped with the tools and processes to run a more robust and profitable business once absorbed into the combined company.

​

Conclusion

​

To compound growth over a long-term, the first step (operations excellence) is where most companies tap out. You first need top-quality operations, founded on a culture of continuous improvement, to drive a widening gap versus competitors. Margin expansion is great, but it only really counts if it is systematic and repeatable. You can cut costs for year or two but eventually you start to hit a wall. Margins at United Rentals have improved by more than double the average of other industrial companies over the last decade. From 2007 to 2019, United Rentals improved margins 7% vs. just 3% for the broader industrials average. This was all done through systematic, repeatable improvements. 

​

The next step is to use those higher levels of profitability to acquire new assets. United Rentals became the acquirer of choice in the fragmented equipment rental industry. Then they systematically raised margins at the acquired companies, so the process could repeat in a virtuous cycle. The combination is rare: top-quality operations, the ability to acquire repeatably and in a low-risk way, and the systems to consistently improve the acquired companies. Scale can get a company part of the way there, but the best bring benefits well past that, and United Rentals is the perfect example. 

​

I think the generalized lesson to take away from this story is that historically awful industries can reach a certain stage where the real power of scale economies starts to emerge. Bonus points if you can pair a really good management team with a fertile landscape to do lots of acquisitions. The key is to look for businesses where the per unit cost declines as volume increases. This essentially decomposes to the largest player benefiting from reduced costs and creating a barrier that makes market share gains prohibitively expensive for your competitors.

​

Imagine what happens when a competitor goes after one of United Rentals markets. United isn’t going to just stand still. They don’t operate in a vacuum. They would observe the challenger attempting to take market share, and slash its prices in response. Because the per-unit costs of United’s rental business is lower than the smaller competitor’s, United is able to stick to that lower price-point for much longer than anybody else in the industry could even come close to. Eventually, the challenger is forced to give up. It happens time and time again. They either agree to be acquired by United or engage in a price war and die a slow death. 

​

How do you evaluate the strength of a scale economy moat like United Rentals? The great book 7 Powers offers the following formula:

​

Surplus Leader Margin = (𝐶/𝐿𝑒𝑎𝑑𝑒𝑟𝑆𝑎𝑙𝑒𝑠) × ((𝐿𝑒𝑎𝑑𝑒𝑟 𝑆𝑎𝑙𝑒𝑠/𝐹𝑜𝑙𝑙𝑜𝑤𝑒𝑟 𝑆𝑎𝑙𝑒𝑠)−1)

​

Where:

C = fixed costs

Surplus leader margin = the margins that the business with Power (the ‘leader’) can expect to have if pricing is such that its competitor’s profits are zero.

​

If we reuse an earlier example, let’s say that a challenger with a smaller customer base goes after United Rentals and offers the same piece of construction equipment at a lower price point. United sees this and cuts its prices too. One way to think about the strength of United’s scale moat is how much margin it has left when they’ve taken their prices down to the absolute floor — the point where the challenger has zero profits left. The bigger this margin, the stronger the moat.

Is this a perfect science? No, not really. In reality there are plenty of confounding factors that might interfere with this analysis — for instance, let’s say that the challenger has access to cheaper capital than United Rentals (unlikely, but say a large tech company like Amazon all of a sudden decided to get into construction equipment rental). Or let’s say that the challenger has the exclusive license to rent out a certain type of specialty rental equipment (REIC). The point of this formula is merely to capture the nature of the scale moat, so you have a way to evaluate the relative power against a specific competitor.

​

Businesses in the middle of such transitions like United Rentals 15 years ago offer a pool of opportunity. They are often ignored because of the historical stink factor of the industry. Until the transformation is just too obvious too ignore, the historical bias against them lingers. The surface-level appearance to institutional investors doesn’t scream “let’s put millions of dollars of capital work here, that’s a great idea.” There’s serious career risk involved in being truly non-consensus. And that’s kind of the point. United Rentals had just the right amount of “ick” to offer really compelling risk-adjusted outcomes. The problem is that it takes a lot of skill to make sure you’re not catching a falling knife. It takes a fair amount of rope from your boss and LPs to invest in historically shitty industries. Unlike Microsoft, Amazon, and Alphabet today, equipment rental was not considered an exceptional business by the general investing public. But unlike 2005 Amazon, the upside potential was less about predicting a radically new industry like cloud computing than it was just executing along a known path, which is a lot easier to underwrite.