Obscene profits. That was the headline one evening of CBS News in 1979. It was a report on the Iran hostage crisis. Petroleum prices had reached all time highs. Exxon had reported excessive quarterly earnings of over one billion dollars. The words OBSCENE PROFITS flashed across the TV screen of a twenty three year old musician. That young man was Brad Jacobs.

“That sounds pretty good,” he thought, “maybe I ought to check out the oil sector.”

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Schultz faced significant challenges raising funds for his Italian-style espresso bar, Il Giornale. His persistence paid off. A group of prominent Seattle investors contributed $750,000. That helped him exceed his $1.25 million target. Schultz’s venture attracted key figures including Dave Olsen. Olsen was a notable figure in Seattle’s coffee scene. This partnership contributed to Il Giornale’s initial success. By mid-1987, Schultz decided to buy Starbucks, raising $4 million from investors. Il Giornale acquired Starbucks in August 1987. The Il Giornale name changed to Starbucks Corporation. Schultz embarked on an aggressive expansion plan, opening 125 stores in five years. He focused on quality employee benefits, which the board resisted. This strategy included comprehensive health benefits and stock options. It paid off. Starbucks reduced turnover and increased customer loyalty. Starbucks’ first profitable year was 1990.

Starbucks continued to grow under Schultz’s leadership. Starbucks’ IPO was in 1992. Starbucks became a global brand. The brand introduced consumer packaged goods like the Frappuccino in 1994. Starbucks partnered with Pepsi. A big challenge was rising coffee prices. Schultz maintained a commitment to high-quality beans. This helped sustain the brand’s value. By 1996, Starbucks had 1,000 stores and $700 million in revenue. Schultz’s leadership saw the company through various economic conditions. Starbucks maintained a focus on customer experience and employee satisfaction. In recent years, Schultz has stepped down and returned as CEO. The current CEO is Laxman Narasimhan. Schulz’s tenure saw Starbucks grow into a multinational brand. They have over 38,000 stores globally. Starbucks (NASDAQ: $SBUX) is one of the market’s top-performing stocks. Starbucks has demonstrated significant increase in revenue and market presence.

The following is Methods of Prosperity newsletter number 60. It was originally deployed August 8, 2024. As of April 10, 2025, original subscribers have received up to Methods of Prosperity newsletter no. 96: Mohnish Pabrai.

Disclaimer: the author is not a financial adviser. NFA. DYOR.

You can now find this week’s TL;DR here.

Part 60.

Big Boring Billionaire Business

How Brad Jacobs Makes a Few Billion Dollars

Key Lessons:

• Recognize problems as opportunities.

• Have free time to find problems.

• Get the major trends right.

• Seek economies of scale.

• Improve efficiency.

• Do your best work.

• Repeat what works.

• Free up data flow.

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Brad Jacobs was born August 3, 1956 in Providence, Rhode Island. He’s the son of Charlotte Sybil (née Bander) and Albert Jordan Jacobs. His father was a fashion jewelry importer. The summer after eighth grade, Brad attended a school for gifted students of art and music. His school’s guidance counselor nominated him for this enrichment program. On the first night, a speech given by one of the leaders captivated Brad. The leader congratulated the students. Then he explained why the guidance counselor selected Brad and the other students.

“This program is a special opportunity,” the leader explained, “but it’s up to you to take advantage of it. You have a choice. You can waste the next couple of months and not accomplish much – just party and do fun stuff,” he said, “or you can go all-in and accomplish much, much more. Whether you’re a musician or a painter, a dancer, a poet, a writer, a film maker, or a photographer. This is an opportunity to go deep on a project and do the best work you’ve ever done. But you have to decide if you want it.” Brad realized that he could be part of something important.

Without completing high school, Brad became a college freshman. He received a scholarship from Northfield Mount Hermon (NMH) Boarding School. A year later, Bennington College offered him a scholarship. He studied math and music. He set out to finish his education at Brown University. Brad dropped out in 1976.

With $1,000 of his Bar Mitzvah money, Brad Jacobs got into the oil business. He co-founded Amerex Oil Associates Inc. in 1979 at the age of 23 and served as CEO. Under his leadership, Amerex grew into one of the world’s largest oil brokerage firms. His company had offices in Houston, London, Tokyo, and New Jersey. Annual gross contract volume was approximately $4.7 billion.

Jacobs oversaw all aspects of the business. This included brokerage activities for refined petroleum products, residual fuels, and energy futures. Amerex Oil Associates Inc. directed all brokerage operations for international and domestic crude oil.

Back then, information moved slowly. There was a need to capture and share information. A newsletter was the main source, the Platts Oilgram Price Report. It has been a key publication in the oil industry since 1923. In 1979, Platts was part of McGraw-Hill. It includes daily prices of benchmark crude oils.

Lack of timely information was a big problem for oil brokers like Amerex. They made money by matching buyers and sellers and taking a commission. Valuable oil pricing data was inefficient. Brad discovered an arbitrage opportunity. He knew that if they could figure out a better way to share that information, they could unlock a lot of value. The problem was there were no off-the-shelf solutions available at the time. Amerex improved data sharing by building their own network. It was a global IT system, a crude precursor to the internet. Appliance-sized computers and large green screens made up the network. They contained a fraction of the computing power of today’s smartphones. This was revolutionary.

System users entered any new data about buyer and seller activity or the price of oil into the database. Amerex shared that information to brokers around the globe. The process took hours instead of days. For that era it was instantaneous. This gave Amerex a competitive advantage. A French commodities trading firm acquired Amerex in 1983.

Brad Jacobs used the proceeds to found Hamilton Resources Ltd. in 1984. He used the same kind of systems as with Amerex, growing the company to $1 billion in revenue over six years. He pioneered leveraging information sharing in the oil industry. Hamilton Resources Ltd. focused on crude oil trading, pre-finance, and refinery-processing deals. In 1989, global competition entered the market.

One lazy Sunday, a new opportunity caught his attention in London, 1989. He was reading Merrill Lynch research reports in bed. A top ranked analyst had written the report. The two largest companies in waste management were each making a half billion in profit per year. That’s when Brad wondered how hard could it be? Have trucks pick up trash, deposit it in a safe place, and send out an invoice. He wanted to learn more. Waste management turned out to be a straightforward business with two big trends. Land fill capacity was becoming precious. Government regulations put small trash dumps out of business. The second trend was integration of hauling and disposal. This presented an opportunity for end-to-end consolidation. Jacobs then transitioned to the waste management industry. He founded United Waste Systems that year.

Brad repeated the same protocol as before. He put together the technology that would cut inefficiency. This time off-the-shelf software did exist. It was expensive routing software, but this was the same kind of big trend that improved data sharing. As this innovation increased efficiency, costs came down and profits went up. Once again his enterprise had a competitive advantage. In 1997, United Waste Systems sold for $2.5 billion.

After that, Brad prepared to roll up another industry, construction equipment rental. Companies buy machines and rent them out to contractors. This was the next big trend he and his team would come across. There was a disconnect between the number of equipment supply and demand. 85 percent of this equipment was not used. There was only one national provider, a subsidiary of Hertz. Thousands of potential acquisitions were available. This was a huge opportunity. That’s when Brad Jacobs founded United Rentals.

Once again, data science gave United Rentals the competitive advantage. By 1997, the industry used software made by Wynn Systems Inc. Owning this company would give United Rentals the industry platform. It also gave them access to high level industry macro trends. This acquisition gave Brad’s company more dynamic pricing and equipment use. It put their competitor, Hertz, on defense.

Hertz had been the undisputed leader of the equipment rental business. They were doing around a billion dollars of annual revenue. This was over the course of 37 years. United Rentals surpassed that in 13 months. One day, Brad received an invitation from their CEO to join him for lunch at New York’s Metropolitan Club. Brad didn’t know what to expect. Did Hertz want to make an offer to buy out their competition? 

To be continued…

I like you,

– Sean Allen Fenn

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Methods of Prosperity newsletter is intended to share ideas and build relationships. To become a billionaire, one must first be conditioned to think like a billionaire. To that agenda, this newsletter studies remarkable people in history who demonstrated what to do (and what not to do). Let me know how I can help you out. For more information about the author, please visit seanallenfenn.com/faq.

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