Friday, January 29, 2010 1/29/10 - predators, not risktakers

In today's excerpt - great entrepreneurs are
not risk takers:

"In 1969, Ted Turner wanted to buy a
television station. He was thirty years
old. He had inherited a billboard business
from his father, which was doing
well. But he was bored, and television
seemed exciting. ...

"The station in question was WJRJ, Channel
17, in Atlanta. It was an independent station
on the UHF band, the
lonely part of the television spectrum
which viewers needed a special antenna to
find. It was housed in a run-down
cinder-block building near a funeral home,
leading to the joke that it was at deaths door.
The equipment was falling apart. The
staff was incompetent. It had no decent
programming to speak of, and it was losing
more than half a million dollars a year.
Turner's lawyer, Tench Coxe, and his
accountant, Irwin Mazo, were firmly opposed
to the idea. 'We tried to make it
clear that - yes - this thing might work,
but if it doesn't everything will collapse,'
Mazo said, years later. 'Everything you've
got will be gone. ... It wasn't just us,
either. Everybody told him not to do it.'

"Turner didn't listen. He was ... the embodiment
of the entrepreneur as risk-taker. He
bought the station, and so began one of
the great broadcasting empires of the
twentieth century.

"What is sometimes forgotten amid
the mythology, however, is that Turner
the proprietor of any old billboard
company. He had inherited the largest
outdoor-advertising firm in the South,
and billboards, in the nineteen-sixties
and seventies, were enormously lucrative.
They benefited from favorable tax
depreciation rules, they didn't require
much capital investment, and they produced
rivers of cash. WJRJ's losses could
be used to offset the taxes on the profits of
Turner's billboard business. A television
station, furthermore, fit very nicely into
his existing business. Television was about
selling ads, and Turner was very experienced
at ad-selling. WJRJ may have been
a virtual unknown in the Atlanta market,
but Turner had billboards all over the city
that were blank about fifteen per cent of
the time. He could advertise his new station
free. As for programming, Turner
had a fix for that, too. In those days, the
networks offered their local affiliates a full
slate of shows, and whenever an affiliate
wanted to broadcast local programming,
such as sports or news, the national shows
were pre-empted. Turner realized that he
could persuade the networks in New York
to let him have whatever programming their
affiliates weren't running. That's exactly
what happened. ...

"[Biographer Christian] Williams writes that
Turner was 'attracted to the risk' of the
deal, but it seems
just as plausible to say that he was
attracted by the deal's lack of risk. 'We don't
want to put it all on the line, because the
result can't possibly be worth the risk' Mazo
recalls warning Turner. Put it all on the
line? The purchase price for WJRJ was $2.5
million. Similar properties in
that era went for many times that, and Turner
paid with a stock swap engineered
in such a way that he didn't have to
a penny down. Within two years,
the station was breaking even. By 1973 it
was making a million dollars in profit.

"In a recent study, 'From Predators to
Icons,' the French scholars Michel Villette
and Catherine Vuillermot set out to
discover what successful entrepreneurs
have in common. They present case histories
of businessmen who built their own
empires - ranging from Sam Walton, of
Wal-Mart, to Bernard Arnault, of the
luxury-goods conglomerate L.V.M.H. -
and chart what they consider the typical
course of a successful entrepreneur's career.
There is almost always, they conclude, a
moment of great capital accumulation - a
particular transaction that catapults him
into prominence. ... Villette and Vuillermot
go on, 'The
businessman looks for partners to a
transaction who undervalue what they sell to
him or overvalue what they buy from him
in comparison to his own evaluation.' He
moves decisively. He repeats the good
deal over and over again, until the
opportunity closes, and - most crucially - his
focus throughout that sequence is on
hedging his bets and minimizing his
chances of failure. The truly successful
businessman, in Villette and Vuillermot's
telling, is anything but a risk-taker. He is
a predator, and predators seek to incur the
least risk possible while hunting."

Malcolm Gladwell, "The Sure Thing," The New
January 28, 2010, pp. 24-25.


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