The Wealth Creators: 5 Success Styles of the Multi-Millionaires

by Roy C. Smith

Overview

The last two decades saw a greater rise in wealth than during any comparable period in history. Now meet the wealth-driven people behind the dollars. The Multi-Millionaires. How Much They Made. How Each One Made It.

At the beginning of 2000, there were nearly three hundred billionaires and five million millionaires living in the United States. Total household wealth had reached $37 trillion, up from just over $8 trillion when Ronald Reagan became president. he stories of these super-rich men and women reflect the social and economic history of the last twenty years.

Roy C. Smith's The Wealth Creators takes the reader into five core areas of opportunity today as well as the career turning points of key individuals in each:

- Entrepreneurs like Mike Bloomberg, Sam Walton, and Ted Turner,
- Dealmakers such as Kirk Kerkorian, Ron Perelman, and Larry Tisch,
- Investors like Warren Buffett and financiers like George Soros,
- Corporate executives such as Jack Welch, Sandy Weill, and Michael Eisner,
- And entertainers like Oprah Winfrey, Steven Spielberg, and Tiger Woods.

Product Details

ISBN-13:	9781429980890
Publisher:	St. Martin's Publishing Group
Publication date:	04/01/2007
Sold by:	Macmillan
Format:	eBook
Pages:	384
File size:	2 MB

About the Author

Roy C. Smith, an Annapolis graduate, was an investment banker at Goldman Sachs for twenty years and has been a professor of entrepreneurship and finance at New York University's Stern School for over fourteen years. He is the author of several books, including The Global Bankers, The Money Wars, and The Wealth Creators. He lives in Montclair, New Jersey.
Roy C. Smith, an Annapolis graduate, was an investment banker at Goldman Sachs for twenty years and has been a professor of entrepreneurship and finance at New York University's Stern School for over fourteen years. He is the author of several books, including The Global Bankers, The Money Wars, and The Wealth Creators. He lives in Montclair, New Jersey.

Read an Excerpt

The Wealth Creators

The Rise of Today's Rich and Super-Rich

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By Roy C. Smith

St. Martin's Press

Copyright © 2001 Roy C. Smith
All rights reserved.
ISBN: 978-1-4299-8089-0

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CHAPTER 1

The Entrepreneurs

The 1999 Forbes 400 list includes 251 individuals whose source of wealth is described as "self-made." These include founders of businesses and others who have not relied upon a salary or inheritance to make their fortunes. Among them are the greatest creators of new wealth in the country, the most successful of our living businessmen. But most of the individuals on this most exclusive list of self-made entrepreneurs are not well known and their business activities are varied beyond belief. They include billionaires whose money comes from medical devices, computer software, railroads, testing laboratories, real estate, home building, stock market investments, trading stamps, oil and gas, computer assembly, direct sales organizations, retailing, health care, mobile phones, music and records, newspapers and media, insurance, cable TV, public storage, plastics, garbage recycling, video tape rentals, sunglasses, sports shoes, credit cards, movie special effects, car dealerships, entertainment, potatoes, and auto rentals. If you add those on the Forbes list worth less than a billion, the number and spread of businesses is much larger and more diverse. The self-made are inventors, manufacturers, financial investors, real estate guys, hole diggers, entertainers, and hundreds of other things.

They are what we think of today as entrepreneurs, though the word itself means little more than businessman or investor. In the parlance of the late 1990s, however, entrepreneurs are not just ordinary businessmen — hired hands and administrators — they are something more, something much more. They are, first of all, owners, who work for no one but themselves. They can be extreme risk-takers and colorful, self-confident persons of strong character and personality. Some get a lot of attention, and many have become celebrities and heroes in our complicated society, in which traditional hero types are in extremely short supply. Some are nerdish, some dull, some mischievous, and some roguish. Think of Bill Gates, Steve Jobs, Michael Dell, Richard Branson, Ted Turner, and Donald Trump. There are also many you never heard of. But stripped of all the hype, entrepreneurs are simply people who, as individuals or in small groups, have started or acquired businesses and attempted to grow and/or alter them to a point where they could cash in on the rewards. (Not all of them are successful, of course, but the image is projected by those who are.) They are founders of enterprises that have made it through the difficult years and been able to profit handsomely. Some are more akin to the dealmakers described in the next chapter. We have always had entrepreneurs, though the times have not always been good to them. Today, after two decades of good times, rising markets, and thousands of entrepreneurial success stories, everybody wants to be an entrepreneur.

Academics have been studying self-made businessmen for a few decades, looking for the keys to success and a methodology to teach to young, would-be entrepreneurs. The literature is rather thin, however, as there really are not a lot of data to study about privately held companies, and the field is endlessly diverse. Most of what we know is anecdotal, and serious scholars are unwilling to conclude much based on anecdotes. We have not yet found, of course, a simple, repeatable formula for turning small or substantially restructured businesses into gold mines. Indeed, many academics believe that great entrepreneurial success is usually a random event, influenced as much by luck as by skill, or by fortuitous (if unwise) risk-taking as by any other quality, in which case there is not much to write about. Accordingly, most of the academic and professional literature about entrepreneurship involves macroeconomic analyses of the role and importance of small businesses in the economy as a whole, or emphasizes the practical how-tos of small business: such things as how to develop a good business plan, how to prepare financial forecasts, how to attract venture capital, or how to go about an initial public offering of stock. These are useful, no doubt, to people who want to carry out these exercises but don't know how to, but for those seeking gold mines, well, they won't learn much.

But we haven't given up entirely. There is something to be learned from studying what the successful entrepreneurs actually did to become successful. As a result there is a steady supply of increasingly high-quality case studies and biographies of such individuals. There are some patterns that can be recognized when we study their careers, and by analyzing the patterns we can learn something about what seems to work or would seem to increase the probabilities of success. Or, to put it another way, we can look for the sine qua non of success — those things without which great success probably cannot happen.

The Bloomberg

The two best things that ever happened to him, Michael Bloomberg believes, were "getting hired by Salomon Brothers and getting fired by Salomon Brothers." Bloomberg, now in his late fifties and chairman of the Bloomberg Group, which he founded in 1981 after being fired, is one of the many self-made entrepreneurs among the Forbes 400 who, in 1999, made up more than half the list.

Bloomberg graduated from Harvard Business School in 1966 and joined Salomon Brothers as a trader. He became an equity block trader, and a partner of the firm in nearly record time. His boss was a colorful but highly controversial character named Jay Perry, who was removed from his position in 1973 following a fistfight with one of his partners. Bloomberg then became the head of all of the firm's equity businesses. But he, too, was (in his words) "pushed aside" six years later in another of Salomon's periodic palace coups. It was all very Wall Street, and Bloomberg was not especially upset by it. He found himself, however, pushed pretty far away from the trading desks he loved and which were the source of all power and fortune at Salomon. He was put in charge of the firm's backoffice computers, something he knew next to nothing about. It was clearly an undisputed transfer to oblivion. The computers were mainly used for operational purposes, to keep track of settlements of traded securities and of the firm's books. All the Wall Street firms used computers to speed up their backoffice activities, but nobody who was anybody at Salomon even knew where they were.

Bloomberg wondered why the computers couldn't be used to assist traders more than they were, to gather up and provide the information they really needed to do their jobs, particularly information about how one security with particular characteristics compared to another. If two essentially similar securities were trading at different prices, a clever trader could buy the cheap one and sell the expensive one and have a position free of market risk that would be profitable when the market recognized that the two securities were slightly mispriced.

About this time, however, he was fired. Salomon had agreed to be acquired by Phibro Corporation, a large commodities trading house. Salomon's partners would get cash for their capital in the firm and a new convertible debenture for an equal additional amount to reflect the intangible values of the firm's franchise. Seven partners, however, would not be asked to join the new company. Mike tells of how he was ushered into the office of Salomon's chairman, John Gutfreund, and bluntly told he was to be one of those not continuing on. Mike was surprised and hurt, but also he knew he was rich. His capital and premium were to be paid out to him in cash — $10 million — more money than he had ever imagined having. At Salomon all partners were required to retain their share of all earnings in the firm as a part of its ongoing capital. They were paid 5 percent interest on their money, and could make withdrawals for taxes and charitable contributions. But otherwise the only way a partner could actually get his hands on his own capital was to die, resign (and then be paid out over ten years), or to be fired. If what you wanted was to take your capital out of the firm, of the three options being fired was the best.

Mike immediately knew that he didn't want to recycle himself through another Wall Street firm and maybe get fired again. Besides, he now had too much money to go work for somebody else. He wanted to be on his own, and he had his own capital to back a business venture. So he set up a new firm in a small office on Madison Avenue and went to work trying to think through a business plan. He had been a trader and knew what traders needed. He had been a computer executive and knew what computers could do. Why not put together the ultimate desktop black box for traders, he figured, one that could provide live market data and could call up from a database all frequently traded public securities, letting the traders compare the various characteristics and prices. The only problem was, such a machine did not exist.

So he set out to design, manufacture, and sell one, and to do so in competition with all the major computer makers and software suppliers that serviced Wall Street plus the now burgeoning technology departments of the firms themselves. And, as he was convinced that the traders on the Street were warming up to what they needed quickly, it would only be a matter of time before someone came up with the black box that everyone would want. This window of opportunity, Bloomberg figured, would only be open to him for a couple of years.

Mike hired some former Salomon colleagues and got to work. Before long he had a pretty good idea of what could be done and what couldn't. Then he went out to make some sales calls to Wall Street firms that he thought would be interested. The critical moment came when he went to pitch his yet-unbuilt machine to Merrill Lynch. He had done some consulting work for Merrill and was easily able to set up a meeting with the head of capital markets, who brought his information technology man with him. Mike delivered an impressive performance, solidly making a case for his machine (and inventing it as he went along). "We can give you a yield curve analysis updated throughout the day as markets change," he said, among other things. He pointed out that no one else had these capabilities on their desks, and it would be a big advantage for a leading trading house like Merrill to have it. The Merrill capital markets head then turned to the technology associate and asked what he thought. "I think we should build it for ourselves," said the technology man. "Well, when could it be ready?" asked the capital markets head. The computer guy, confronted as all Wall Street technologists were by a huge backlog of uncompleted work orders submitted by desperate operating departments, grimaced and said, "We could probably start working on it in about six months." Mike immediately saw his opportunity and went for it.

"Your traders will want this capability long before you can build the machine yourselves. If others have it and you don't, your guys will be at an expensive disadvantage in the market. And, if your technology people are at all like the ones at Salomon, you shouldn't take their promised get-started date at face value. They mean well, but they don't know what other demands, some legitimately urgent, will be put upon them over the next year. Every department of every firm on Wall Street wants to be upgraded to state-of-the-art computer capability as soon possible. The demands on your guys will be incredible and deadlines are going to get missed."

So, he said, he would make Merrill Lynch an offer it couldn't refuse. "I'll get it done in six months and if you don't like it, you don't have to pay for it." The capital markets man accepted on the spot.

The team at Bloomberg now had a problem — they had to meet their commitment or eat their costs and perhaps all their plans for the future too. But they also had an advantage. They could focus all their efforts on one thing without being distracted by other requests. They could also work around the clock if they had to — they had nothing more important to do — to accomplish their goal. But still they had to pull it off, and right up until the last minute it was not clear that they would be able to deliver a model that would work well enough. But they did, and "the rest," says Mike, "is history."

Merrill not only ordered a lot of machines, it offered to buy 30 percent of the company. Mike was ecstatic. In only three years he had invested over $4 million of his own money in this venture, and now he had gotten it back and more. Plus he had had the world's biggest securities firm as a confirmed customer. This relationship would help just about everyone else sitting on the fence decide to buy a machine as soon as they could.

Mike named the machine The Bloomberg, and soon traders everywhere had to have one. Just as he had predicted, the traders could not bear to be unequipped with something their rivals were using successfully. They didn't want a similar machine, they wanted the real thing — The Bloomberg. So orders poured in.

His next breakthrough was to realize that he was not just supplying a trading machine with historical data on it to the securities market, but indeed providing all the real time information needed by traders and other businessmen operating in an environment that could not wait for tomorrow's newspaper. So he redirected his focus toward becoming the equivalent of CNN for all fast-moving business and financial news. He would supply the information — the blades, not just the razors. Thus the Bloomberg Group became a media business unconstrained by its history or vested interests. Bloomberg TV runs twenty-four hours a day and includes interviews with newsworthy company officers, ratings agencies, and Wall Street analysts to present investment information continuously. Bloomberg Radio is a twenty-four-hour news-only radio station. Bloomberg.com gives you all this information in extremely user-friendly form on the Internet. There are also the Bloomberg Forum, the Bloomberg News Magazine, and other forms of multimedia information delivery, all of which are available throughout the world. The business, though still heavily dependent on the cash flow from The Bloomberg, is self-financing. Mike has since bought back a third of the stock he originally sold to Merrill Lynch, leaving Merrill with 20 percent, and he still owns virtually all of the rest of the company himself. He has no desire to go public, he says, reflecting his continuing disinterest in working for other people (i.e., independent shareholders). In 1999, seventeen years after forming the company (and two years longer than he spent at Salomon Brothers), Forbes estimated his net worth at $2.5 billion.

SELF-MADE MONEY

For those who, against long odds, succeed as entrepreneurs in building a business that becomes highly valuable, there are special rewards: wealth, power, and (if you want it) fame and the right to be a bit eccentric.

To do this, though, first requires that you quit your day job, the one that has been providing you with a paycheck. When you do this, you start to appreciate the risks that entrepreneurs take from the first day, including the risk of not having any money to support yourself with. You may also have ruined an otherwise promising career by quitting it abruptly without any assurances of being able to return. And for years into the future, you must live with the knowledge that all that you have gained, or hope to gain, could amount to a lot less than what you walked away from, or could be lost tomorrow on a misstep or a sudden change in the market. No matter how else you measure entrepreneurial characteristics, this first, primordial requirement must be present — the willingness to step off into the void, risking most of what other people think of as security and well-being.

Entrepreneurs usually must beg, borrow, and scrape every barrel to collect enough money to get started, and then to meet payrolls and to continue to invest in expanding the enterprise. Years may have to go by before you can take anything out for yourself. The Business becomes an obsession; disproportionately important in your life — your main reason for being — and it extracts a heavy price from other, more normal relationships. Entrepreneurs worry a lot and maybe become a bit paranoid, but underneath there is a feeling that it's all worth it; a passion is being satisfied — the satisfaction of having done things your way, for having succeeded in the real world largely as a result of your own vision, follow-through, and leadership and organizational skills. Achieving entrepreneurial success may be the greatest challenge available to anyone in business. And being a founder of a successful business is certainly the best way to make the greatest amount of money, if all goes well, which, of course, often it does not. Indeed only a very small percentage of entrepreneurs are able to see their efforts culminate in big money.

Today's business entrepreneurs may have become the cultural replacement for the famous American rugged individualists of the last century, the ones who tamed the West and built great industries from nothing. Most of these entrepreneurs own and operate small businesses. According to the Small Business Administration, there were about 6.6 million corporations in the United States in 1996, the vast majority of which were small businesses. This total swells to about 23 million when sole-proprietorships and partnerships are included, 57 percent more than in 1982, the first year of the Reagan bull market. These small businesses are engaged in the most humdrum and mundane of all human commercial activities as well as the most exciting, such as the latest biomedical and computer software enterprises. Small businesses collectively accounted for 64 percent of all job growth in the country in the period 1990-1996. Because of this, and the large number of them, small businesses are popular with politicians and attract support from federal and state governments for financing and start-up assistance. In 1996 842,000 new small businesses were formed, but there were also 72,000 that failed. Most survive the many hazards of the first few years of existence but do not reach the point of becoming a publicly owned company, when significant wealth may first appear to be within reach.

(Continues...)

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Excerpted from The Wealth Creators by Roy C. Smith. Copyright © 2001 Roy C. Smith. Excerpted by permission of St. Martin's Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Contents

Introduction: A Shining City on a Hill,
Chapter 1: The Entrepreneurs,
Chapter 2: The Dealmakers,
Chapter 3: The Investors,
Chapter 4: The Tycoons,
Chapter 5: The Entertainers,
Chapter 6: The American Wealth Culture,
Epilogue: The End of an Era?,
Acknowledgments,
Notes,
Index,

Editorial Reviews

“If you’ve ever wondered how the extra-rich got that way, you will find a great variety of enlightening answers in The Wealth Creators. Roy C. Smith writes from an investment banking perspective, and it’s the investment bankers who know.” Martin Mayer, author of The Bankers

EBOOK COMMENTARY

If you’ve ever wondered how the extra-rich got that way, you will find a great variety of enlightening answers in The Wealth Creators. Roy C. Smith writes from an investment banking perspective, and it’s the investment bankers who know.” Martin Mayer, author of The Bankers

From the Publisher