Entrepreneurship – Page 185 – artdiamondblog.com

“Bet the Company”

When entrepreneurs, or innovative companies, take large risks, and succeed, we sometimes begrudge them their success. But we should remember that sometimes they took great risks, and that they could have lost everything if they had lost the ‘bets’ they made.

One of the most famous examples of ‘betting the company’ is when Tom Watson, Jr. of IBM ‘bet the company’ on the development of the expensive, but pathbreaking, system 360.

This episode is mentioned many places. One that I ran across recently is in Gerstner’s memoir of his own time at IBM. The following lines appear in Gerstner’s brief summary of some important periods in IBM’s earlier history:

Much has been written about this period and how Tom "bet the company" on a revolutionary new product line called the System/360—the original name of IBM’s wildly successful mainframe family.

To grasp what System/360 did for IBM and its effect on the computing landscape, one needs to look no further than Microsoft, its Windows operating system, and the PC revolution. System/360 was the Windows of its era—an era that IBM led for nearly three decades. (p. 114)

The reference to the Gerstner book, is:

Gerstner, Louis V., Jr. Who Says Elephants Can’t Dance? Leading a Great Enterprise through Dramatic Change. New York: HarperCollins, 2002.

African Entrepreneur Funds Prize for African Leaders Who Resist Kleptocracy

Billionaire entrepreneur Mo Ibrahim. Source of photo: online version of the NYT article cited below.

At a news conference in London on Thursday, Mo Ibrahim, a 60-year-old Sudanese-born billionaire who made his money in the cellphone business, announced that he was offering a $5 million prize for the sub-Saharan African president who on leaving office has demonstrated the greatest commitment to democracy and good governance. The money will be spread out over 10 years.

“We must face the reality,” Mr. Ibrahim said, referring to Africa’s leadership record. “Everything starts by admitting the truth: we failed. I’m not proud at all. I’m ashamed. We really need to resolve the problem and the problem, in our view, is bad leadership and bad governance.”

. . .

Unlike many projects that aim to help famine-stricken villages or far-flung AIDS clinics, this one is supposed to focus on political leadership — and the post-independence culture of autocrats and kleptocrats that spawned such figures as Mobutu Sese Seko of Zaire or Idi Amin of Uganda.

. . .

Africa’s culture of the Big Man clinging to office was built in part, Mr. Ibrahim said, on a sense among many of its leaders that, if they relinquished power voluntarily, they would face penury and powerlessness and would no longer be the font of patronage or the tenant of what he called “the hilltop palace.”

“We want them to have a life after office,” Mr. Ibrahim said.

“Your leaders here become rich after they leave office,” he said, referring to the directorships, book deals and lecture circuit tours that accrue to Western leaders. “What life is there for our people after office? Some of our leaders cannot even afford to rent an apartment” in their own capitals, he said.

For the full story, see:

ALAN COWELL "Prize to Honor Heroes in African Democracy." The New York Times (Fri., October 27, 2006): A11.

(Note: ellipses added.)

More Good Done With Standard Oil Money: Henry Flagler

The Flagler Memorial obelisk was erected in on a man-made island in 1920, when Miamians still remembered the accomplishments of Henry Flagler. Source of image: http://www.miamibeachfl.gov/newcity/depts/arce/art_public/rw_flagler_monument.asp

The Standard Oil "monopoly" is often lambasted as a sorry episode in our economic history. And yet a strong case can be made that the Standard Oil wealth was created mainly by efficiently providing consumers with a commodity they valued. In addition, mention is often made of the Rockefeller philanthropic activities. Less known, is that others who became rich from Standard Oil, also engaged in productive entrepreneurship, and philanthropy, with their wealth. One of these was Henry Flagler.

In a region that prizes showy monuments to wealth, the lone monument to the man who made it all possible has languished in isolation for decades.

A soaring concrete obelisk dedicated to Henry Flagler, the oil tycoon who hastened South Florida’s development by building a railroad all the way to Key West, it sits on a tiny man-made island in Biscayne Bay, reachable only by boat or, more typically, Jet Ski. Almost everyone here has glimpsed the Flagler Memorial, but few know what it is called, why it exists or how battered it looks up close.

”I’m telling you, it’s a beautiful work of art,” said Paul Orofino, a board member of the Environmental Coalition of Miami Beach, a nonprofit group that occasionally tidies up Monument Island, the memorial’s scruffy, overgrown home. ”It’s a tragedy that nobody pays attention to this thing.”

It is not the kind of South Florida tribute one might expect for Flagler, who extended his railroad from St. Augustine to West Palm Beach in 1894, Miami in 1896 and Key West — a segment that lasted only 23 years until a hurricane demolished it — in 1912.

Flagler was the state’s original megadeveloper, after all, creating its tourism industry by turning swampy pioneer settlements into the world’s grandest resorts. He was also, perhaps, its first huckster, advertising the nascent Miami as ”the most pleasant place south of Bar Harbor to spend the summer.”

His over-the-top winter home in Palm Beach, awash in gold, is now a museum, but most of its visitors come from out of state, said John Blades, the museum’s executive director. Mr. Blades has tried to get a statue of Flagler erected in Palm Beach, which owes its sumptuous existence to the man, but has so far failed.

”Flagler,” Mr. Blades said, ”is probably the most unappreciated titan of the Gilded Age.”

For the rest of the story of the impressive, but deteriorating, Flagler Memorial in Miami, see:

ABBY GOODNOUGH. "South Florida Journal; Unappreciated, With Memorials to Match." The New York Times (Fri., October 7, 2005): A12.

(Note: the hurricane destroyed the Key West link of the railroad in 1935.)

Henry Flagler. Source of image: http://flaglermuseum.us/html/flagler_biography.html

Mellon Allowed Great Innovation By Restraining Intrusive Government

(p. W4) Though scarcely known today, Andrew W. Mellon was a colossus in late 19th-century and early 20th-century America. He would come to play a major role in the management of the American economy, but first he built one of the country’s great fortunes, one that would rank him today with Bill Gates and Warren Buffett. He is now the subject of a comprehensive, if slightly grudging, biography by David Cannadine, the distinguished British historian.

Mellon is not associated with any single industry, in the way that Andrew Carnegie and John D. Rockefeller are. He was a venture and equity-fund capitalist, one of the first to function on a major scale. He and his younger brother, Dick, took over their father’s Pittsburgh-based investment and coal-mining business and expanded it into many fields, including copper, oil, petrochemicals and aluminum (Alcoa).

No banker was as gimlet-eyed; Mr. Cannadine shows Mellon shrewdly and coldly calculating every investment prospect. Yet few venture capitalists were as daring. In the 1890s, when Rockefeller was ruthlessly monopolizing the petroleum industry, Mellon didn’t flinch from setting up a competing refinery. When Mellon finally sold out to Rockefeller, he did so at a considerable profit. Several years later he came back to oil and eventually built Gulf into an industry giant.

Original Supply-Sider

But Mellon was more than an entrepreneurial industrialist. In his mid-60s he became a famous — and infamous — public servant, performing as Treasury secretary under three presidents, from 1921 to 1932. He was the original supply-sider, pushing tax cuts under Presidents Harding and Coolidge. He argued that the high tax rates left over from World War I were depressing economic activity; that lower rates would turn the economy around; that high-income earners would end up paying more and that low-income earners would be removed from the tax roles entirely.

His program was a fantastic success. The top rate was cut to 25% from 77%. The rich did indeed pay more, while low- and middle-income earners saw their tax bills shrink to nothing or next to nothing. The economy boomed. The U.S. outstripped more heavily taxed nations, such as Britain and France. Mellon also pushed painstakingly for the creation of an international monetary system to replace the one shattered by World War I. The big challenge was huge Allied war debts to the U.S. and onerous German reparations. Mellon negotiated the easiest terms that were politically possible so that trade and economies could revive.

We sometimes forget just how dynamic the 1920s were in America. The automobile became a commonplace item for working Americans; labor-saving devices, such as the washing machine, grew ever more common as well; movies and radio provided mass entertainment as never before (an experimental television broadcast was carried out in 1927); and stock ownership widened to include more members of the middle class.

It was a time of great innovation and inventiveness, and in a sense Mellon presided over it all by allowing it to happen without intrusive government policies.

For the full review, see:

STEVE FORBES. "BOOKS; The Man Who Made the Twenties Roar." The Wall Street Journal (Fri., October 6, 2006): W4.

Reference for the book:

David Cannadine. MELLON. Knopf, 2006. 779 pages, $35

Source of book image: online version of the WSJ article cited above.

Entrepreneur Makes Risky, Massive Infrastructure Bet

A Louisiana site where Cheniere is building a terminal for liquified natural gas. Source of image: online version of the NYT article cited below.

Charif Souki is making a risky business decision. If he is wrong, he and his investors will lose much. If he is right, consumers will be better off, having a larger supply of liquified natural gas (LNG). And if he is right, he should be allowed to make a lot of money, both because that is just, and because it is useful for those who have bet right in the past, to have ample means to bet right in the future.

(p. C1) CAMERON PARISH, La. — The Sabine River channel, where alligators and speckled trout live alongside petrochemical plants and oil refineries, has suddenly become the center of a quiet revolution in the world of natural gas.

And it is mainly at the prodding of a little-known company called Cheniere Energy, with help from Exxon Mobil and Sempra Energy. Together they have overcome formidable regulatory hurdles to build three new liquefied natural gas terminals on the channel that will double the nation’s capacity to import natural gas by 2011.

It has been 24 years since anyone on American shores has built a new liquefied natural gas terminal. Two of the country’s four existing onshore terminals, which dock tankers the size of aircraft carriers ferrying supercooled gas from places like Qatar and Trinidad, were mothballed for years because production at home was plentiful and prices were low.

As recently as five years ago almost nobody in the energy world thought it possible to make money from a new American terminal project — with price tags that start at $600 million — let alone get a federal permit.

One lonely believer was Charif Souki, a Lebanese immigrant entrepreneur who had previously raised (p. C4) money for real estate in Paris and hotels in Hawaii before becoming chairman of Cheniere, a floundering gas exploration company. Not even the 9/11 attacks, which made many people on the Atlantic and Pacific Coasts view liquefied natural gas terminals as potential terrorist targets, diverted him from his vision.

Now, even as natural gas prices sag, along with his company’s stock price, and the word glut is on the tip of the tongue among the drilling crowd, Mr. Souki says he is fixed on the longer view.

He is convinced the nation will need to import more gas because North American production is declining. That is the same view Mr. Souki held six years ago, when he decided to shake up the company’s business plan. He defiantly changed its stock symbol to LNG in 2003, and devoted himself to scoping out the country’s coastlines for potential terminal sites.

The already energy-intensive shoreline along the Gulf of Mexico, he concluded, made the most sense, economically and politically, and he started buying real estate in uninhabited harbors close to existing pipelines and gas-thirsty refineries and petrochemical plants.

“People were actually amused that we would be thinking about importing natural gas,” dryly giggled Mr. Souki, 53, a man with a taste for double-breasted suits. “Nobody took us very seriously.”

Cheniere was so unprofitable and utterly spurned by investors in 2002 that Mr. Souki had to borrow $30,000 from his company’s president just to meet a payroll. But over the last four years, Mr. Souki has managed to arrange financing, sign up long-term buyers and master the regulatory process.

For the full story, see:

CLIFFORD KRAUSS. "A Big Bet on Natural Gas." The New York Times (Weds., October 4, 2006): C1 and C4.

The map shows the area in which the terminal is being built. The bottom photo shows a Louisiana site where Cheniere is building a terminal for liquified natural gas. Source of image: online version of the NYT article cited above.

In Egypt: The Authorities Versus the Entrepreneur

Cairo entrepreneur serves good food to willing customers. Source of image: online version of the NYT article quoted and cited below.

In The Other Path, Hernando de Soto wrote about how governments in much of the world make it nearly impossible for the poor to legally get a start as entrepreneurs. Here is a perfect example of de Soto’s point:

CAIRO, Oct. 2 — With his cart tucked beneath a highway overpass, just beside the railroad tracks and behind a parked taxi, Farouk Salem darted his eyes back and forth nervously as he awaited customers.

On most days, except during Ramadan, the sun has barely risen and worshipers are shuffling out of the nearby mosque after morning prayers as the first customers make their way to Mr. Salem. A few quick flicks of a ladle, the shaking of a bottle or two, and breakfast is ready.

Mr. Salem sells ful, the fava bean stew that is a staple of Egyptian cuisine, as a cheap, hearty breakfast for just 20 cents. But he is an unlicensed street vendor, one of the many hundreds of thousands of Egyptians who make their living in what economists here describe as Egypt’s informal work force: selling, delivering, cooking, cleaning, serving, ferrying, shoeshining, anything that will provide income.

Dr. Rashad Abdou, a professor of economics at Cairo University, estimated that the informal sector might account for as much as 60 percent of Egypt’s economy.

“As long as I keep a low profile, they don’t bother me,” Mr. Salem said on a recent day, as his brother worked behind the parked metal cart, dishing out bowls of ful. The police have forced him to move many times and have even confiscated his cart. But it is hard to keep a really low profile when the food is good and the prices are cheap.

As the sun began to heat up the morning air, customers showed up in a steady stream, some still in their pajamas.

“It’s good,” said Muhammad Abbadi. “It’s clean. And the most important thing is it’s cheap. We are poor. You see how poor we are in Egypt.”

. . .

“If the authorities want to chase me away, they will do it,” he says, his face tight and nervous. “If they want to put me in prison, they can. If they want to take my cart away, they can.”

He walked over to get some more bread as Muhammad kept ladling.

For the full story, see:

MICHAEL SLACKMAN. "CAIRO JOURNAL; A Hand on the Ladle, and an Eye Out for the Law." The New York Times (Tues., October 3, 2006): A4.

(Note: ellipses added.)

Ful is a fava bean stew that is popular in Cairo. Source of image: online version of the NYT article cited above.

The reference to the de Soto book is:

Soto, Hernando de. The Other Path: The Invisible Revolution in the Third World. 1st ed: HarperCollins, 1989.

“Work Alone”

Source of book image: http://www.mactime.ru/Environ/WebObjects/mactime.woa/2/wa/Main?textid=6114&level1=mactimes&wosid=b2qk07iEkIh6GoutH7IbVg

Many scholars interpret Schumpeter as believing that large firms would increasingly become the main source of innovation. Scherer, Christensen, and many others, have provided plenty of reason to doubt this belief. Here is another reason, from one of the innovators who helpted bring us the personal computer:

What emerges in "iWoz" is a chatty memoir full of surprises. Yes, Mr. Wozniak cherishes workbench minutiae, such as his tips for connecting circuitry wires. But he also sees this book as a chance to cut through cliché and explain himself to a larger audience. He reveals a technology pioneer who is more charming and annoying — and whose life is more poignant — than we expected.

. . .

As Apple roared ahead, going public in 1980 and then becoming one of the 500 largest U.S. companies, Mr. Wozniak’s golden moment came to an end. New products weren’t developed anymore by a brilliant prankster working with barely any sleep. There were now teams, committees and market studies.

Mr. Wozniak by his own account didn’t like these changes, and he didn’t want to rise into senior management. He hung on at Apple as a lone engineer — and he says he still collects a tiny paycheck from the company — but from the mid-1980s onward turned his attention to other things.

. . .

Fortunately, Mr. Wozniak finishes strong. In his final chapter, he offers a bit of advice to gifted engineers: "Work alone." Big companies tend to stifle innovation, he explains. It’s lonely and risky to work solo. No matter. "Man, it will be worth it in the end," he writes. His life bears out the truth of that simple claim.

For the full review, see:

GEORGE ANDERS. "BOOKS; Technostalgia; Steve Wozniak looks back on the computer revolution and his role as Apple’s co-founder." Wall Street Journal (Sat., September 30, 2006): P8.

(Note: ellipses added.)

The reference to the book by Wozniak:

Steve Wozniak, with Gina Smith. iWoz Norton, 2006. 313 pages, $25.95.

Steve Jobs at left, and Steve Wozniak at right, in San Francisco in 1977. Source of photo: online version of the WSJ article cited above.

Entrepreneurship Survives, Even in Mogadishu

In Mogadishu the nose of one of the two Black Hawk helicopters that were were shot down in 1993. Source of the photo: online version of the NYT article cited below.

MOGADISHU, Somalia, Sept. 23 — They call her the “Black Hawk Down” lady.

And in the corner of her dirt yard, beneath rags drying in the sun and next to a bowl of filthy wash water, she keeps a chunk of history that most Americans would probably like to forget.

It is the battered nose of a Black Hawk helicopter, from one of the two that got shot down in Mogadishu on Oct. 3, 1993, in an infamous battle that killed 18 Americans, led to a major foreign policy shift and spawned a big movie.

The Black Hawk Down lady stands fiercely at her gate and charges admission to see it.

“You, you, you,” she said on a recent day, jabbing her finger at three visitors. “Pay, pay, pay.”

. . .

Ecstatic Somalis ransacked the wreckage, stripping the helicopters and melting down the metal. Some people even ripped insignia patches off the bodies of the soldiers to keep as grim souvenirs.

. . .

But Ms. Elmi had a different plan. Her husband had died a long time ago, and she had six children to feed. Two of her older sons were killed, she said, when the helicopter crashed. She dragged the cracked nose piece, about five feet across but actually pretty light because it was made of fiberglass, back to her house.

. . .

Ms. Elmi began humbly, charging neighborhood boys the equivalent of a few cents to get a peek at her one exhibit, the last known chunk of wreckage from what Somalis refer to as Ma-alinti Rangers, the Day of the Rangers.

But after the movie “Black Hawk Down” came out in 2001 — and pirated copies found their way to Mogadishu — business boomed.

“So many people came, I cannot count,” she said. “White people, brown people, black people.”

When asked why they come, she snapped: “How should I know? Do you think I am mind reader?”

The entrance fee is now around $3 for foreigners; locals get a discount and pay 75 cents.

. . .

Some people say they fear the Islamists will impose a draconian version of Islam in Somalia, which up until recently had been relatively secular.

But Ms. Elmi said she loved the Islamists. And she has her own reasons.

“They bring peace,” she said. “And peace brings tourists.”

For the full story, see:

JEFFREY GETTLEMAN. "MOGADISHU JOURNAL; From the Ashes, a Chunk of America Beckons in Somalia." The New York Times (Thurs., September 28, 2006): A4.

(Note: in the print version, but not the online version, there is a subheader placed in the center of the article that reads: "An entrepreneur feeds a family, thanks to the remnants of a battle.")

(Note: ellipses added.)

Sprint to Risk Billions on New Infrastructure

Source of graphic: online version of the WSJ article cited below.

If Sprint bets on WiFi, they’re betting with their money; if the government bets on WiFi, they’re betting with your money. If Sprint succeeds, thereby benefiting the consumer, at no risk to the consumer, the consumer should not object to their earning huge profits.

Note also, that this is a plausble candidate for a firm trying to follow Clayton Christensen’s advice to try to disrupt itself. (And see the comment at the end, for someone who hasn’t read Christensen, or doesn’t believe what he has read.)

Analysts say building a nationwide WiMax network could cost Sprint between $1 billion and $4 billion, a hefty sum for a company that is already struggling to meet Wall Street’s expectations. Sprint said it expects to invest $1 billion on the project in 2007 and between $1.5 billion and $2 billion in 2008.

Sprint’s decision carries considerable risks: Investors have hammered telecom companies that have made large capital investments in new technologies, banking on future markets to emerge. For example, among other things, Verizon Communications Inc.’s stock has been under fire as the company is rolling out a costly new fiber optic network that it says will position the company to deliver a bundled TV, Internet, and phone service. Also, WiMax technology is still untested on a large scale.

Sprint is making a huge bet that consumer demand for wireless Internet access and services such as cellphone downloads of music and video will continue to grow in the coming years. Consumers already can get access to wireless Internet service at Wi-Fi "hotspots" in airports and coffee shops, and some cities, like Anaheim, Calif., are blanketing their terrain with Wi-Fi connections.

. . .

. . . , some analysts and industry experts question why the company is gearing up for such a major capital investment when it is already even or ahead the other top U.S. carriers, Verizon and Cingular Wireless, when it comes to data services. "Why compete against yourself? It doesn’t make a lot of sense at this point," said Mike Thelander, principal analyst at Signals Research Group who predicted several weeks ago that Sprint would choose WiMax.

For the full story, see:

AMOL SHARMA and DON CLARK. "Sprint Bets on New Wireless ‘WiMax’." Wall Street Journal (Tues., August 8, 2006): B1-B2.

(Note: the above passages are from the online version, which was later, and less tentative about Sprint’s intentions, than the print version.)

(Note: ellipses added.)

A Tale of Two Churches: Russia Has an Entrepreneurial Tradition Too

Two old and exotic churches, St. Basil’s in Moscow and Kizhi in the Russian north, survived the Soviet era and are invariably depicted in brochures and books to suggest the distinctiveness of Russian culture. Both feature the tent roofs and onion domes that dominated the skyline of medieval Russia. But each bears mute witness to a very different tradition: one, imperial centralism; the other, entrepreneurial regionalism. Both are embedded in Russia’s history; the conflict between them may well determine Russia’s destiny.

St. Basil’s, looming over Red Square, is an enduring symbol of theatrical autocracy; the Kizhi church, of frontier inventiveness. Authoritarian centralism has been growing recently under President Putin. But he also is fond of Kizhi and brought its new priest with him on his last trip to New York.

. . .

Tolerance was implicit in the northern tradition of dvoeveria: the simultaneous belief in both the old pagan spirits and the new Christian God. Medieval petroglyphs of the Kizhi region freely intermixed symbols of both. Peasants in the region were not enserfed. The northern region lost much of its independent power when Moscow sacked and subdued Novgorod.

. . .

Many more people have seen St. Basil’s on Red Square than Kizhi on an island in Lake Onega — and most see Russian history in terms of autocratic power in Moscow rather than creativity amid adversity in the regions. Kizhi is the supreme monument to this forgotten tradition that continued to unfold as the vast Russian domain spread north to the Arctic Ocean and across the Pacific to Alaska in the 17th and 18th centuries.

No one knows who was the architect of either monument. But Russian popular folklore suggests that the creator of St. Basil’s was forcefully either blinded or drowned to assure that it could never be duplicated. In contrast, the creator of Kizhi is said to have simply thrown his ax into the lake and lived on peacefully as a holy man in the northern forests.

During that time, Moscow autocrats looked out from the closed front porch of St. Basil’s to see the enemies of central power drawn and quartered publicly in Red Square. By contrast, the Kizhi church was wider and open to the sky — and where local people gathered to solve practical problems, facing a vista of lakes and forests.

Much of the renewed vitality in Russia today is coming from young people in the regions. Their hopes for a more participatory and accountable political and economic future depend on the kind of open community that created Kizhi — not the closed circles that cling to St. Basil’s.

For the full commentary, see:

JAMES H. BILLINGTON. "MASTERPIECE; Two Churches, Two Russias; One born of authoritarian centralism, the other of entrepreneurial regionalism." Wall Street Journal (Sat., September 16, 2006): P18.

Entrepreneur’s $100 Million Rocket Destroyed

Lesson one: entreprepreneurship is risky, and often fails. Lesson two: when an entreprepreneur’s rocket is destroyed, his $100 million goes up in smoke; when NASA’s rocket is destroyed, your $100 million goes up in smoke.

Government and industry efforts to develop innovative, less costly rockets suffered a high-profile setback Friday, when the initial flight of a satellite launcher bankrolled by outspoken entrepreneur Elon Musk ended in failure.

After Mr. Musk spent nearly four years and well over $100 million of his personal fortune to create a rocket company from scratch, his Falcon project became the best-known and most aggressive entrant in the fledgling small-rocket segment. But according to preliminary assessments, a fuel leak and resulting fire during last week’s inaugural launch shut down the main engines less than 30 seconds after blastoff from a Pacific atoll. The rocket and a research satellite built by Air Force Academy students were destroyed.

For the full story, see:

Pasztor, Andy. "Entrepreneur’s Rocket Suffers Setback During Maiden Launch." Wall Street Journal (Monday, March 27, 2006): A14.