HOW TO BE A BILLIONAIRE Proven Strategies by Mousom

HOW TO BE A BILLIONAIRE Proven Strategies by Mousom Strategy 1 Billionaires vary in their tolerance for risk, and being a high risk taker isn’t a necessity for amassing impressive amounts of wealth. Yet, almost without exception, all billionaires take risks at some point in their business careers that others hesitate to take. Most often, these risks are taken on the basis of intimate knowledge of the business, and when they work out, have the effect of launching net worth into a higher orbit. Examples n When Apple and Microsoft went to court over computer software in March 1989, Steve Ballmer (then the sales manager of Microsoft) purchased $46 million of Microsoft stock. Within three years, those shares had a market value exceeding $350 million as the court ruled in Microsoft’s favor. n Sam Walton was highly conservative, always avoiding debt. He did, however, go into debt when bar-coding and satellite communications became available – long before they were proven to be viable ideas for general merchandising. The adoption of this new technology turned out to be an astute investment which saw Wal-Mart leap ahead of its competitors. n H.L. Hunt parlayed a $50 start-up capital stake in 1921 into a $600,000 pool of capital in 1925 by investing in the oil business. He then offered to buy an apparently dry oil well from a wildcat driller for $50,000 in cash, $45,000 in promissory notes and a guarantee of $1.3 million should the well go into production in the future. The owner accepted the offer, and Hunt later managed to turn that well into a huge oil producer which ultimately generated more than $100 million in profits for him. n John Kluge took Metromedia private in a $1.2 billion leveraged buyout in 1984. He even had to refinance part of the transaction in order to comply with government regulations, using high yield “junk bonds”. As the prices of broadcasting assets surged over the next two years, Kluge not only managed to pay off the debt but also netted a profit of $1.6 billion. Kluge risked everything he had created over the preceding 25-years on the direction the stock market would move from 1984 to 1986. And in doing so, became a billionaire. Key Thoughts “The greatest factor in my life – and I know entrepreneurial people don’t want to express it, they think it diminishes them – but luck plays a large part. I think the ability to gauge risks is crucial. I never ordinarily take on things that I can’t see some end to, where you pile risks on risks.” – John Kluge “The race isn’t always to the swift, nor the battle to the strong, but that’s the way to bet.” – Damon Runyon

Strategy 2 Most often, business innovation means to execute a good idea better than the competitors rather than having an original idea. Billionaires often upset the status quo by doing something better than anyone else can manage – which usually attracts loads of criticism from those with vested interests who liked things just the way they were. Examples n Ross Perot resigned from IBM and formed Electronic Data Systems (EDS) in 1962 with $1,000 he borrowed from his wife. He rapidly built EDS into a successful computer services business on the strength of low overheads, creating huge incentives for employees and minimal bureaucracy. (Interestingly, Ross Perot had actually approached IBM with the idea of expanding their computer services division first, and had been turned down, so he decided to make a go of the business himself). As it turned out, EDS was in the right place just as the demand for computer services took off. For example, when the federal government introduced Medicare in 1965, EDS was already processing medical claims for the Texas state government, and EDS was able to quickly expand throughout the country. Perot excelled at building an organization full of self-starters who used their own initiative to generate more business for the company. By the time EDS went public in 1968, Ross Perot’s EDS stock was worth more than $1.5 billion. He would later sell his controlling interest in EDS to General Motors for $2.55 billion and start a new company, Perot Systems. By the time of its 1999 IPO, Perot’s stake in his new company was worth more than $2.1 billion. n Sam Walton started his first Wal-Mart in 1962, and by 1991 was the largest U.S. retailer with $32.6 billion in sales. He succeeded in building his business around the central framework of a strong work ethic, prudent risk taking and an overwhelming desire to beat the competition. Walton always freely admitted he probably spent more time in his

competitor’s stores than anyone else and he adopted the best business practices he saw elsewhere. Sam Walton just managed to consistently find ways to do it better than anyone else. He also injected a lot of personality, and adherence to the American way of doing business, into everything he did. Key Thoughts “The day I made eagle scout was more important to me than the day I discovered I was a billionaire.” – Ross Perot “Most everything I’ve done I’ve copied from someone else.” – Sam Walton “Sam Walton’s career strongly suggests that a mere desire to amass wealth is not a sufficiently strong enough motivation. Success is more likely to accrue to people who find intrinsic satisfaction in the accumulation of wealth, as opposed to the possession of wealth.” – Martin Fridson “Eagles don’t flock. You have to find them one at a time.” – Ross Perot Strategy Achieving and sustaining a position of market dominance is one of the more obvious Billionaire strategies, although it often attracts the attention of regulators. Smart wealth builders price their goods at a level that generates healthy rather than sensational profits so as to avoid new market entrants. Examples n Standard Oil Company, created by John D. Rockefeller, is considered the textbook example of this type of strategy. He used secret discounts on railroad shipping costs to acquire all his competitors and build America’s largest refining company. Rockefeller then gradually expanded his company’s reach, adding still further strategic assets and other companies. This, in turn, attracted antitrust action, which ultimately led to the breakup of the business. However, by the time of his death in 1937, John Rockefeller had given away more than $1.3 billion to charity but still had a net worth exceeding $1.7 billion. n In the computer era, Microsoft is considered to be the prime example of the benefits of market dominance. Founded in 1975, Microsoft has always been a computer software development company. The business really took off when it landed the contract to develop the operating system software for the upcoming IBM PC in 1981. Microsoft’s software – which it had purchased from the original developer for $50,000 – generated $16 million in sales the first year it was released, and within 10-years was generating over $200 million annually. The company was slow to move into the applications software market, and it wasn’t really until the release of the Windows product line in 1984 that Microsoft moved aggressively into this field. On the strength of Windows, Microsoft became the first software company to exceed $1 billion in annual revenue in 1990. In subsequent years, Microsoft has continued to grow spectacularly, on the strength of business strategies like: n Being perfectly prepared to make enemies by playing to win with tenacity and ingenuity. n Being dedicated to success – which means in practical terms working harder than everyone else. n Making the most of any good fortune that comes along, whether it is truly deserved or not. Microsoft has never been too proud to take advantage of lucky breaks and the mistakes of competitors. n Being prepared to test boundaries, to push the envelope and engage in a little bit of brinkmanship. Key Thoughts “If we weren’t so ruthless, we’d be making more creative software? We’d rather kill a competitor than grow the market? Those are clear lies. Who grew this market? We did. We survived companies like IBM, ten times our size, taking us on.” – Bill Gates “I believe it is my duty to make money and still more money and to use the money I make for the good of my fellow man according to the dictates of my conscience.” – John D. Rockefeller Sr.Strategy Consolidating a large number of small business enterprises into a large company with better cost efficiencies is a viable strategy for creating wealth. Billionaires who are exceptional deal makers and good organizers have used this strategy with great success. Examples n J. Pierpont Morgan was the mastermind behind the consolidations of a number of small businesses which ultimately became American Telephone & Telegraph, General Electric, International Harvester, United States Steel Corporation, Western Union and Westinghouse Electric Corporation. n Wayne Huizenga has become a billionaire by undertaking consolidations in the waste hauling, videotape rental, automobile sales and rental, hotels, portable toilets, lawn care, bottled water, pest control, billboards and machine parts industries. The billion dollar companies he has built include Waste Management Technologies, Blockbuster Video and Republic Industries. The strategies employed in building these companies have included: n Astute financial savvy – using techniques like the “purchase method” of accounting to ensure the consolidated business treats the goodwill paid advantageously from an accounting perspective. n Having highly motivated managers – by encouraging them to buy stock in the company with their own money. n Owning business enterprises which are closely involved in the operation of the consolidating company. n Networking assiduously. n Hard work. n Rigorous negotiation skills and a willingness to renegotiate repeatedly until favorable terms can be worked out. n An intense desire to win, combined with a willingness to do whatever it takes. n An ability to find out what the other party wants out of a deal, beyond money. Key Thoughts “Money is how you keep score.” – Wayne Huizenga “We operate under the philosophy that we’re no smarter than our competitor. To accomplish twice as much, you have to work twice as hard, and we have a lot of hardworking people who don’t mind making a sacrifice to see the company grow.” – Wayne Huizenga “A deal is like chasing a girl. You work at it until she says yes. You keep putting the pressure on them. Hit ‘em right between the eyes. You kill ‘em.” – Wayne Huizenga “Wayne always keeps the carrot far enough out in front of him and he never really wants to catch it. That’s his personality. He’s never satisfied.” – Dean Buttrock, Waste Management
Strategy 3 Everyone knows the key to success is to buy low and sell high. Lesser known is the fact Billionaires don’t leave the sell high side of the equation to chance. They get actively involved in creating the conditions necessary for a high sale price to be realized. Examples n J. Paul Getty had a highly refined ability to find bargains. He hired tutors to teach him about art, and then proceeded to become a successful art collector. Equally, during the Great Depression, he purchased many

properties for a fraction of their construction costs. And he excelled in the oil industry, often purchasing tracts of land others had passed over and turning them into impressive performers. He also played a large part in the establishment of the Saudi Arabian oil industry because he negotiated favorable terms. n Laurence Tisch made his fortune by finding value where others saw none. He took an unprofitable movie house, Loew’s Theaters, and started acquiring New York hotels, which he then renovated lavishly and arranged for high profile guests. Again, in the 1980s, Tisch prospered by going against conventional wisdom and buying offshore oil drilling rigs during a severe downturn in the exploration industry. When the market rebounded, those investments generated huge cashflows. Tisch also became chief executive officer of CBS in 1986 when its value was vlow and led an enthusiastic cost cutting exercise. He did well when CBS was sold to Westinghouse Electric in 1995. n Warren Buffet is generally considered to be the world’s most successful investor. His entire investment strategy is simple to describe yet difficult to emulate: n Wherever possible, acquire a controlling interest in the companies invested in, and then work with management to improve profitability. n Acquire a strong cashflow business – like an insurance company – to provide funds for investment, tax benefits and financial leverage. n Put extraordinary managers in charge of each business, focused on attaining the highest possible return on investment rate. n Hold stock in a small number of superior companies which have unique business franchises for long periods. n Negotiate terms that would not be available to smaller investors. n Find value where other commentators only see problems and potential poor results. Key Thoughts “I look for businesses in which I think I can predict what they’re going to look like in ten or fifteen or twenty years. Take Wrigley’s chewing gum. I don’t think the Internet is going to change how people are going to chew gum.” – Warren Buffet “Your standard of living doesn’t change after the first million. I don’t want to become possessed by my possessions.” – Laurence Tisch Strategy Smart deal makers are keenly aware of all the profit sources inherent in every transaction, and negotiate terms that position themselves to profit regardless of how everything works out. Billionaires succeed because they master all the complexities, inferences and flow-on effects of business transactions better than the people on the other side of the negotiating table. Examples n Kirk Kerkorian started out buying and selling surplus military airplanes at the end of World War II. He was also an early investor in Las Vegas, well before it became established. The ability to spot and negotiate a good deal before anyone else does has continued to serve him well. Kerkorian later became involved in a number of corporate acquisitions, often being able to profit handsomely by selling a stake in a company back to its own management for huge profits. He is also the master of contingency planning – and never enters into any transaction without several exit strategies being available for use as required. Kerkorian was very active in the 1990s, with investments in the leisure industries field and a highly public and ultimately profitable investment in Chrysler (where his $1.4 billion investment grew to more than $5 billion in market value). n Carl Icahn excels at negotiating complex business transactions. Frequently, he will start rambling on unrelated topics in the middle of a negotiation in a bid to win more concessions while the other party is distracted. Another often used technique of his is to return to the negotiating table with revisions on deals that have already been agreed to. Icahn is also a master of making an insultingly low-ball opening offer, just to see what the reaction of the other party is. Throughout his career, Icahn has frequently taken huge personal financial risks, and put himself into exceptionally tight situations and then negotiated his way out again. His tenacity at negotiating has been the whole foundation of a billion-dollar fortune. n Phil Anschutz brought the Southern Pacific Railroad in 1988 and then set about putting together a merger with Union Pacific to create the largest railroad in the United States less than 10-years later. By virtue of being an astute deal maker, combined with the ability to analyze what markets are likely to grow in importance, Anschutz managed to raise his net worth from $1.9 billion in 1993 to $6.2 billion in 1997. Anschutz excels at finding ways to use assets creatively that have not occurred to other analysts. Key Thoughts “There was a time when I was aiming at $100,000. Then I thought I’d have it made if I got a million dollars. Now it isn’t the money.” – Kirk Kerkorian “It’s exciting when you’re playing for high stakes and you feel you have an edge.” – Carl Icahn “I am a student of strategic timing and cycles. It’s important to have your back to the wall. It teaches you how to think outside the box.” – Phil Anschutz