The Intelligent Entrepreneur
How Three Harvard Business School Graduates Learned the 10 Rules of Successful Entrepreneurship
By Bill Murphy Jr.
Henry Holt and Company Copyright © 2010 Bill Murphy Jr.
All rights reserved.
To be nobody but yourself in a world which is doing its best, night and day, to make you everybody else means to fight the hardest battle which any human being can fight; and never stop fighting.
— E. E. CUMMINGS
Marc Cenedella was pumped. He had blazed his own path after graduating from college in 1992, moved clear across the country, and struck out on his own. Just two years later, his audacity was about to pay off. He was on his second sales job now, and when he'd landed this position with an import-export firm in San Diego, he'd negotiated an incentive-laden employment deal. Entitled to a third of everything he brought in, Marc had enjoyed a heck of a run over the past twelve months. He'd made the company $420,000. His share of the profits would be well over six figures.
He walked into the office on the morning of his annual review, understandably excited about the money that would go into his pocket. But he was prouder still of having charted his own course. He'd made good deals by developing good relationships. He'd gotten to know the U.S. manufacturers whose products he represented. He'd flown to Japan to learn about his customers. He'd kept his eyes open and used his brain. As just one example, when he'd learned that two of Japan's most powerful status symbols were pet ownership and American clothing, he'd come up with the unorthodox but lucrative idea of exporting American-made pet food to Tokyo. He'd thought of some great ideas, and he'd seen them through.
Marc had grown up in a big family outside Buffalo, New York, with three brothers and thirty first cousins. He'd done well in high school — class president, editor of the student newspaper, captain of the swim team — and he'd graduated near the top of his class. With dark, thick hair, a round face, and a perpetual smile, Marc was both restless and methodical. He'd won a partial scholarship to Yale and worked hard for the rest of his college money — waiting tables at Favorite's Pizza in New Haven, Connecticut, tending bar at official university events. He'd poured drinks at homecoming and reunions, listening as the alumni talked about their success at the firms his classmates aspired to join: Morgan Stanley, Goldman Sachs, Fortune 500 firms like General Motors and IBM. He heard talk of law schools and MBA programs. To Marc, Yale in the late 1980s and early 1990s seemed like it could be a stairway to untold riches. Everyone was eager to climb to the top.
Early on, though, Marc realized he wasn't built for stairways. He wanted something different. He wanted something more.
He read constantly, and as Marc perused business magazines and newspapers, he read again and again that "international business" would be the high-growth area of the 1990s. He liked the sound of that — Marc loved the idea of traveling, and he was eager to add stamps to his passport and see the world. Meanwhile, after reading a book called Places Rated Almanac, he decided to move to either Seattle or San Diego after graduation. The weather in San Diego made the difference; after growing up in Buffalo, he wanted to live somewhere sunny and warm.
Marc followed through on his plan, but if California promised plenty of sunshine, the American economy did not. When Marc graduated from college, in 1992, the United States was mired in the longest recession since the 1930s. Time magazine predicted that the eventual recovery would be "one of the slowest in history," and that the 1990s would be "a decade of lowered expectations."
At the outset, Marc knew virtually no one in California and had no network. Jobs were scarce. He eagerly took an unpaid internship at the World Trade Association, a San Diego–based organization comprised of 850 local businesses that were all engaged in "international business" of one sort or another. The job offered one invaluable perk: access to the association's membership list, with the name, address, and employee roster of all the import-export businesses in the San Diego area. Marc sent résumés to every company that looked interesting; before long, he had an offer to work on "special projects" at a tiny local firm. Within weeks, he persuaded the company to allow him to pick up extra duties, such as managing a few small international sales accounts.
"You've got South America" was his boss's direction. "Call and see if they want to buy anything."
Marc soon proved that he had a knack for sales. But he also discovered that his boss had the habit of cracking open a new bottle of Chivas Regal every morning. Things went sour fast. Within a few short months, Marc and half the other employees were laid off.
Marc's parents wanted him to return home, but he persevered. Eventually, he received an offer from a much larger import-export company, and the incentives were extremely attractive — he would get to keep one-third of the profits he brought in. It was a handshake deal, and although Marc made several attempts to get the agreement in writing, it never quite happened.
Written contract or not, Marc was excited about his new job. He dove in headfirst, reasoning that the best thing he could do was become indispensable. Each week, he compiled a list of overseas business contacts, then set up the company fax machine to blast faxes all weekend long. On Mondays, he always had at least a few inquries from overseas merchants who wanted to buy and sell all kinds of products. Today, batteries; tomorrow, software. Next week it might be dog food or Levi's jeans. One month in early 1994, Marc realized that at age twenty-three he'd become the single largest U.S. importer of prune juice.
Marc loved the travel, loved the work. He quickly built a reputation as an outstanding performer. And he looked forward with great anticipation to the day when he'd sit down with his boss for his annual review.
But when the boss reviewed his sales figures and saw his calculation of his share of the profits, he seemed genuinely shocked.
"We really can't do that," he told Marc. "This is more than the president of the company makes, more than anyone makes. You're a rookie here. We can't do that."
Marc protested vehemently, but his boss now claimed to have no recollection of offering a one-third commission. Marc felt incredibly naive for having believed in the handshake deal. It was a very painful and expensive lesson.
Ready to quit, Marc marched out of the office and headed toward the beach. Staring out at the Pacific Ocean, he tried to decide whether his boss sincerely didn't recall the agreement or whether he was simply getting screwed.
How could I have been so careless? Marc asked himself. How could I have failed to get the agreement in writing?
And then, watching the waves break on the sand, he asked himself the harder question.
What the hell am I going to do now?
After getting burned by his boss, Marc didn't quit immediately, as he couldn't afford to be without a job. But he started thinking a lot harder about his future, and he took two important steps.
First, he applied to business school. Maybe all those Yale alumni had the right idea. Marc ordered applications for Harvard, Stanford, and the Wharton School at the University of Pennsylvania. He took the GMAT, called his old professors for recommendations, and started crafting essays.
Second, he started to think about launching an import-export business of his own. He'd spent a full year making deals, he reasoned. If he'd brought in more than $400,000 working for someone else, why couldn't he do at least that well working for himself?
Starting a new company would be a huge step, not just practically but emotionally. Marc thought of himself as an introverted person. For all his audacity in moving out west, he still felt like the nine-year-old kid he'd once been, riding the swim team bus and reading Time magazine cover to cover while the other kids screamed and played. But he also recalled a couple of times when he'd shown flashes of an entrepreneurial mind-set. As a college freshman, for instance, he and some friends had written the dean of students, griping that their dorm's snack shop was run-down, losing money, and open only a few nights a week. Let us take it over, he and his friends had written, and we'll do better. The hostile takeover worked; they ran the shop five nights a week and made it much more successful.
But that was a tiny operation. In contrast, Marc remembered another friend in college who seemed to be a natural entrepreneur. The guy had started a laundry service, charging other students to take their clothes to a coin-operated Laundromat in town. Marc remembered thinking he couldn't ever be the type of person to come up with creative ideas like that and make them work.
Even so, Marc was a bit more experienced now, and he was still young and single. He had very little to lose. He knew the industry, he reasoned. He'd already discovered that exporting pet food to Japan could be very lucrative; maybe that should be his specialty. If he could keep a high percentage of the clients he'd brought into his old firm, and scale up his business quickly, he figured he could gross a million dollars before costs. He needed about $250,000 to launch, but he thought his pet food industry suppliers might be interested in funding him, especially since he'd be using a lot of the money to buy their products.
By early 1995, Marc had decided to take the leap. His mother's maiden name was Forbes, so he named his company after her: Forbes Pacifica Trading Company, LLC.
Launching the company proved much tougher than Marc expected. Few customers followed from his old firm. He was barely making ends meet. But then, just a couple of months into the new venture, Marc came home one evening to find a fat envelope from Harvard Business School in his mailbox. He'd been offered a spot in the HBS class of 1997.
This seemed like deliverance — a chance to far exceed his expectations and hopes for his little import-export company. HBS was the alma mater of wildly successful entrepreneurs and businesspeople, men and women who had made fortunes in industries that Marc didn't even pretend to understand. No, he reflected, he hadn't succeeded in business — but what did that really matter now? Who could possibly fault him for giving up his struggling little company to attend perhaps the most prestigious business school on the planet?
But he kept hearing a little voice in the back of his head: You're a product of all the decisions you make. This one didn't feel right.
He couldn't do it. He couldn't leave his three investors — who had only just put up the money he needed to start the company — and he couldn't let Forbes Pacifica die an early death. Besides, he'd been taken to the cleaners by his former company; more than anything, he wanted to get his revenge by taking away their business.
Marc turned down Harvard. He gave his full attention to Forbes Pacifica.
Over the next year, Marc made six long trips to Asia, pushing his clients' products and working to open new markets. Soon his pet food business took off, and Marc began looking around for other unusual products to sell. At one point, he heard from his customers that a drought in Thailand had led to a shortage of brine shrimp — better known in the United States as "sea monkeys," thanks to the old comic book advertisements that promoted them as pets. In Asia, they were used primarily as feed in commercial shrimp farms. Marc went to Salt Lake City, tracked down about ten tons of the stuff from a supplier, and made a deal. The tip proved extremely valuable. His trip brought about $50,000 in profit.
By mid-1995, Forbes Pacifica was on track to do $3 million in revenue for the year, of which Marc would bank about $195,000. His investors were happy; he was happy. But before long he began thinking about Harvard Business School again. As someone who had declined an offer of admission, he figured he had a good shot at getting in if he were to apply again, especially since he could talk about how he'd built a successful business in the intervening year. And, he thought, if he were doing this well with no formal business education whatsoever, what might he accomplish if he had the education and the network of a place like HBS behind him?
One morning, Marc lay awake in a hotel room in Tokyo, mulling things over.
He asked himself: If I could be the king of the Japanese pet food market by the time I turn thirty, would that be enough?
When he put it that way, the answer came easily: No. It's not enough.
Marla Malcolm's blue Honda Prelude had been a gift. But as she pulled onto the freeway heading south toward Silicon Valley one morning in October 1993, she reminded herself that the car was also the result of a deeply disappointing outcome.
Her California-girl good looks — blond hair, blue eyes — were what people saw first. But underneath, Marla was introspective, quiet, and driven. Her parents had given her the car a few years before to commemorate her graduation from high school, but also because she'd chosen to attend the University of California at Berkeley — a much less expensive option than the Ivy League colleges she'd long aspired to. Marla had thrived at Berkeley, but she was well aware that she would have had more opportunities if she'd gone to a more prestigious college.
Her peers at Stanford and Harvard seemed privy to a secret. In Marla's mind, they all knew how to find the well-traveled highway to professional success, a route on which the best and the brightest young people were identified, recruited, groomed, and rewarded. But the on-ramps to this highway were hidden to people like her, and Marla had spent years trying to find them.
Her immediate destination this morning was Palo Alto. Her boyfriend, a recent Stanford graduate, had suggested that she think about working in the management consulting industry. Marla was an economics major, and her boyfriend had told her that some consulting firms paid as much as $40,000 a year to the smartest young liberal arts graduates — a very healthy starting salary at the time. But their definition of "the smartest" was narrow, and it generally excluded Marla and her classmates. The biggest firms didn't recruit at Berkeley, but they had well-established interviewing programs at Stanford and around the Ivy League. If that was where the management consulting firms looked for talent, Marla decided, that was where she'd go.
Growing up in nearby Oakland, Marla was the daughter of a stay-at-home mom and a hardscrabble entrepreneur dad who had built an insurance agency and a real estate business out of virtually nothing. Her father had put her to work in his office at a young age. By seven she was organizing his files; by twelve she was doing simple bookkeeping and accounting. Marla grew up thinking about business, but also knowing she aspired to a bigger, better future — even before she had any idea what that might mean.
The important moments in her life passed almost unnoticed by those closest to her. Her mother was attentive and involved, but there were times when financial constraints meant they couldn't have everything they wanted. Back in grade school, all of the other kids started wearing Izod brand shirts, the ones with a little alligator label on the chest. Marla badly wanted an Izod shirt of her own, but her mother said no. They were too expensive.
"When I grow up," she decided quietly at the age of nine or ten, "I want to make sure I can afford the things I want."
Another moment came a few years later, at her sister's soccer game. Her sister was younger, but taller and more naturally athletic, and in Marla's mind her parents had categorized each girl. Marla had been encouraged to play piano; her sister played sports. Sitting next to her mother at the game, Marla decided she didn't want to be shoehorned anymore, and she announced that she wanted to play soccer. At first her mother reacted with surprise, but she quickly agreed. No problem; if Marla wanted to be an athlete, she could be an athlete.
Earn enough money. Become what you want to be. They were simple tenets, but they had driven her ever since.
Marla was focused and high achieving throughout middle and high school. She worked hard to become a successful athlete; she made the varsity volleyball and softball teams as a sophomore, and by her senior year she was captain of the volleyball team. Her grades were good enough that she could sit in the back of Mrs. Kubicek's math class and read romance novels without suffering any consequences. Marla liked the idea that the heroes in these books were all proud, powerful women — one of her favorite books focused on a young woman who took over her family's perfume empire. The books were fantasy, but to Marla the stories carried a very real message: she could achieve anything she wanted to achieve. (Continues...)
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