The Self-Made Billionaire Effect: How Extreme Producers Create Massive Value - Softcover

John Sviokla; Mitch Cohen

Softcover

ISBN 10: 0241199484 ISBN 13: 9780241199480

Publisher: Portfolio Penguin, 2015

Synopsis

In honor of The Self-Made Billionaire Effect purchases, PricewaterhouseCoopers LLP is making a significant contribution to DonorsChoose.org, an online charity that connects public school teachers in need of classroom materials and experiences with individual donors who want to help. PwC's gift will support financial literacy projects around the country. Imagine what Atari might have achieved if Steve Jobs had stayed there to develop the first massmarket personal computer. Or what Steve Case might have done for PepsiCo if he hadn't left for a gaming start-up that eventually became AOL. What if Salomon Brothers had kept Michael Bloomberg, or Bear Stearns had exploited the inventive ideas of Stephen Ross? Scores of top-tier entrepreneurs worked for established corporations before they struck out on their own and became self-made billionaires. People like Mark Cuban, John Paul DeJoria, Sara Blakely, and T. Boone Pickens all built businesses-in some cases, multiple businesses-that are among today's most iconic brands. This fact raises two profound questions: Why couldn't their former employers hang on to to these extraordinarily talented people? And why are most big companies unable to create as much new value as the world's roughly 800 self-made billionaires? John Sviokla and Mitch Cohen decided to look more closely at self-made billionaires because creating $1 billion or more in value is an incredible feat. Drawing on extensive research and interviews, the authors concluded that many of the myths perpetuated about billionaires are simply not true. These billionaires aren't necessarily smarter, harder working, or luckier than their peers. They aren't all prodigies, crossing the billionaire finish line in their twenties. Nor, most of the time, do they create something brand-new: More than 80 percent of the billionaires in the research sample earned their billions in highly competitive industries.

About this title

About the Author:

JOHN SVIOKLA is head of Global Thought Leadership at PwC (PricewaterhouseCoopers LLP). He serves a variety of Fortune 500 clients on the topics of strategy and innovation and runs The Exchange, the firm’s think tank. John has held various leadership roles at PwC as well as at other public and private companies. He was on the faculty of the Harvard Business School for twelve years. John has written for the Harvard Business Review, The Wall Street Journal, Financial Times, and Sloan Management Review and has appeared on CNBC and Fox News.

MITCH COHEN is vice chairman at PwC. During his thirty-three years at the firm, including more than twenty years as a partner, Cohen has held a variety of leadership roles and has served numerous Fortune 500 clients.

Excerpt. © Reprinted by permission. All rights reserved.:

     

INTRODUCTION

     

Whenever you find yourself on the side of the majority, it is time to pause and reflect.

—MARK TWAIN

Imagine what Atari might have achieved in the early 1980s if Steve Jobs had worked inside to develop the first mass-market personal computer? What might Steve Case have done for PepsiCo if he had decided to stay rather than join the gaming start-up that would eventually become AOL? Would Redken have been the first hair care brand to explode the market for salon-quality hair products if John Paul Mitchell Systems cofounder John Paul DeJoria had not been fired for his unconventional sales leadership style? Would Miles Laboratories have succeeded if it had pursued the idea posed by Michael Jaharis, then a young lawyer in its ranks, to proactively brand and market acetaminophen years before Tylenol became a household name? What if Salomon Brothers had kept Michael Bloomberg, or Bear Stearns had exploited the inventive ideas of Stephen Ross?

Jobs, Case, DeJoria, Jaharis, Bloomberg, and Ross, as well as Broadcast.com founder Mark Cuban, Celtel founder Mo Ibrahim, oil-and-gas magnate T. Boone Pickens, and scores of other extreme entrepreneurs all worked for established corporations before they struck out on their own. Some fled corporate constraints. Others were pushed out. Each one became a self-made billionaire. They all built businesses—in some cases multiple businesses—that are among the most iconic brands today. The influence of these and the roughly eight hundred other living self-made billionaires is so widespread that few people anywhere in the world can go a day without using, seeing, or in some way encountering the products and services they have created.

But what might their former employers have become if these exceptional value creators had decided to pursue and produce their ideas inside the organizations? Put a different way, why aren’t existing corporations able to create massive value the way these self-made billionaires have? In so many cases, large corporations had the literal talent necessary do so—the self-made billionaires worked for them.

That latter question is top of mind for today’s business leaders—smart, experienced, successful managers who are seeing their organizations pushed to the limits by rapid change. In today’s environment all the base assumptions of how to build and sustain value are constantly in flux: What makes for efficient scale? Who are our competitors? Who are our customers? What do they want? Who owns what? Where is the risk? In a recent CEO survey conducted by PwC, more than half of the respondents predicted they would need to change their strategy either incrementally or wholesale in the coming years. Nearly 70 percent of those same respondents said they were concerned about talent issues, and 25 percent did not pursue a clear opportunity in the past year because they believed they didn’t have the talent to take advantage of it.1 The fact that so many self-made billionaires held managerial positions in midsize to large firms before striking out on their own suggests that the survey respondents just might be wrong about this issue. They have the talent but haven’t taken the time to identify or nurture it.

Taken together, these responses make clear that business leaders are uncertain about how to tackle the particular challenge of continually creating value in today’s environment. Throughout their careers these leaders have taken care to cultivate and promote managers with sound judgment—that celebrated ability to see the world as it is and to make smart, strategic decisions based on reality. Judgment works best when the rules of the game are well established, when the variables are known. But what do you do in a changing world where the variables keep shifting?

To answer that question we decided to look more closely at the leaders and the businesses that have thrived in our era of constant change. Despite the challenges of the day, despite the apparent mismatch between available skills and huge opportunities, there is a group of people creating value at an explosive pace and scale—self-made billionaires. We defined self-made billionaires as those individuals who create wealth of more than $1 billion through entrepreneurial activity; even those who inherited some financial resources or an existing business can qualify as self-made if they expand the value of that resource on the order of 100X or more.

In 2012, there were more than eight hundred self-made billionaires worldwide; they made up more than two thirds of the total billionaire population.2 Overall, billionaire wealth has grown faster than the world economy, more than tripling from 2 percent to 7 percent of GDP between 1987 and 2012.

Why did we focus on self-made billionaires? Because creating a billion dollars or more in value is an incredible feat. If you have discipline and you work hard, you can become a top-notch accountant or a lawyer. Years of dedication and a little luck might propel you to partner status at PwC or a law firm, or perhaps into the C-suite at a Fortune 500 firm. Do that and you will likely achieve multimillionaire status, but your chances of becoming a billionaire along that path are almost zero. There are clear paths to wealth, but there is no tried-and-true road to megawealth. Billionaires have to do something extraordinary to make it as far as they do. Good luck plays a role, but luck will only allow a million-dollar idea to bring in a million dollars’ worth of value. Becoming a billionaire requires luck and a great deal more.

Self-made billionaires thrive in an environment of shifting variables. Take Dietrich Mateschitz, the founder of Red Bull, who has generated cultish devotion for a drink that even devoted fans agree tastes like cough syrup. Or Sara Blakely, a fax saleswoman/stand-up comic, who had the all-too-common problem of visible panty lines under her white pants. Spanx, the hosiery company she created to make the product she wanted, earned accolades from self-made billionaire tastemaker Oprah Winfrey and generated explosive growth in an era when hosiery stalwarts were seeing their revenues plummet. Or Joe Mansueto, the soft-spoken founder of Morningstar, who at the age of twenty-three was forced to sift through dozens of mutual fund prospectuses in order to manage his fledgling personal investment portfolio. Surrounded by piles of paper, he thought, “Gee, this could be a business.” Mateschitz, Blakely, Mansueto, and hundreds of others—these are the people creating hugely profitable businesses in today’s world.

When we looked more closely at self-made billionaires, we found that sound judgment was not in short supply. These are people who have dealt with the world as it is, made excruciating choices, and placed bets based on hard realities. But what truly makes them stand out is that their judgment is balanced by extraordinary imaginative vision.

Cultivating a balance of judgment and vision is a challenging task. Findings from neuroscience suggest that for most people, judgment and imagination sit on opposite ends of a mental spectrum. The more skilled one is at seeing things as they are (judgment) the harder it is to see things as they might be (imagination).3 But somehow, the population of self-made billionaires manages to defeat the binary mental spectrum that places judgment and imagination in opposition to each other.

The tactics and habits we identified that allow self-made billionaires to achieve that balance are the core of this book. They suggest practices that companies and individuals can adopt to enhance their value-creation capabilities.

So what is the source of the self-made billionaire effect? What allows them to create such massive value? How do they rise above the apparent trade-off between judgment and imagination? What other skills, habits, life experiences, or talents distinguish them from the pack? And most important, what can these insights teach us about the talent we as executives need to find and cultivate in order to thrive in challenging times?

We begin to answer these questions in Chapter 1, where we present our foundational findings on what makes self-made billionaires different from the average corporate executive. The findings not only surprised us, they also changed the way we think about executive talent and what we need to look for in the talent we bring into business and nurture.

1

     

EXPLODING MYTHS OF EXTREME ENTREPRENEURSHIP

     

The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.

—F. SCOTT FITZGERALD

In 1984, Dietrich Mateschitz was a bored, forty-year-old marketing executive at the German cosmetics company Blendax. He spent his days peddling toothpaste and cosmetics to retailers around the world. “All I could see was the same grey airplanes, the same grey suits, the same grey faces. All the hotel bars looked the same, and so did the women in them. I asked myself whether I wanted to spend the next decade as I’d spent the previous one.” 1 Then on a routine trip to Thailand—like dozens of others he had taken—Mateschitz had an insight that would change his career.

While reading the newspaper one morning at his hotel, Mateschitz learned that the Japanese manufacturer of a line of supersweet “health” drinks popular in Asia was the biggest taxpayer in Japan. Mateschitz knew the drinks and had taken them for the energy boost they gave as an antidote to jet lag. There was nothing like them in the West. That they were a huge moneymaker had never occurred to Mateschitz, and he decided right then to quit his job and start a company to manufacture and market the drinks in Europe.

Within a few years, Red Bull, the business Mateschitz founded with Thai business associate Chaleo Yoovidhya—a toothpaste manufacturer who also had a sideline in beverages—had launched its signature carbonated beverage in Mateschitz’s native Austria and in Slovenia. Within a decade Red Bull was in the UK, Germany, and eventually in the enormous beverage market in the United States. In all of the markets it entered, Red Bull became an almost overnight sensation. Red Bull was the first in what became, during the 1990s and 2000s, a burgeoning market of “energy” drinks, a beverage category that is neither a sports drink like Gatorade nor an amped-up soda like Mountain Dew. Red Bull charged through as a supersweet, caffeine-infused carbonated beverage that merged the appeal of sweet sodas and extreme sports into something entirely new: a drink that “gives you wings.” Mateschitz redesigned the beverage to be a carbonated, less concentrated version of the syrupy shots he was inspired by, and he redesigned the traditional soda can as an eight-ounce bullet shape that signaled to the buyer that this was not just another cola.

Today, Red Bull is far more than the drink that carries its name. It is a media company; a Formula 1 franchise; a Nascar franchise; a sponsor of mountain climbers and skiers and other extreme sportsmen; a “philosophy,” as its founder has said, of life lived in a heightened state of adrenaline-fused activity—all bred from the modest foundations of a good idea.2

HOW ARE BILLIONAIRES DIFFERENT?

     

The story of how Dietrich Mateschitz built his brand empire reads on the surface like many examples of extreme entrepreneurial success—there is the serendipitous moment of revelation, the useful connections to the right people, the willingness to risk his career on an uncertain venture. Yet not every insight, every business connection, every risk taken results in a billion dollars of value. That success is not evenly distributed across the range of good ideas made us ask the question that lies at the root of this book: namely, what enables self-made billionaires to create such massive value?

There are plenty of available truisms that get touted by thought leaders in response to that question. Extreme entrepreneurs take bigger risks, for example, or they focus on new markets. We didn’t know at the outset whether any of these ideas were true, but on their own they didn’t seem to explain the scale of success that these people achieve. Many people take risks, but very few reap high returns. Many entrepreneurs launch into new growth markets, but few emerge with a blockbuster hit.

The answer, we decided, was more complex. To find it, we first decided to dig deeper into the business literature to find what business scholars have to say from studying self-made billionaires. We expected to find a strong base of academic research focused on identifying the behaviors, characteristics, and secrets of success of self-made billionaires. What we found surprised us—in fact, no one had done a systematic study of self-made billionaires. We found plenty of isolated stories and first-person narratives culled from magazine profiles and autobiographies. But there have been only a few attempts at systematic evaluation of entrepreneurial success at any scale, and those evaluations often come to contradictory conclusions.3

Quickly it became clear that if we wanted answers, we would need to look for them ourselves. Ultimately, that was a good thing—we didn’t have to contend with prior research making strong conclusions that might influence our thinking.

We set up a research team in early 2012 at PwC, where Mitch is a vice chairman and John is the leader of Global Thought Leadership. To identify our research subjects, we took the 2012 Forbes list “The World’s Billionaires” and eliminated people who had inherited their wealth from a parent, a spouse, or other family member. We also removed billionaires operating in markets that lack the regulatory transparency to ensure fair play—all billionaires take advantage of economic conditions, but we chose to focus on those operating in environments where reasonably transparent and competitive markets predominate.4

Left with roughly 600 people, we randomly selected 120, adjusted to mirror the geographic and industry distribution of the larger sample, and set out to learn as much as we could about them. We collected everything we could find that had been written about our subjects and captured biographical details (place of origin, age, marital status, family makeup) and the trajectory of their careers (When did they start their first business? What were some of the key inflection points in the growth of their primary business? At what point did they transition from modest entrepreneur to massive value creator?). Simultaneously, we invited a number of the people on our list to participate in interviews with us so we could learn more about them.

As we began collecting data and conducting interviews it became almost immediately clear that a lot of the truisms that get touted as the keys to successful entrepreneurship didn’t stand up to the data we had. For instance:

Age

Our tech-dominated era—populated by savvy wunderkinder—has left the impression that most self-made billionaires cross that billion-dollar finish line ear...

About this edition

• Publisher: Portfolio Penguin
• Publication date: 2015
• ISBN 10: 0241199484
• ISBN 13: 9780241199480
• Binding: Paperback
• Number of pages: 256