delanceyplace.com 1/29/10 - predators

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In today's excerpt - great entrepreneurs are predators 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 wasn't 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."