THIS IS MY 161ST BLOG ON UNDERSTANDING MONEY
TOOLS
March, 2019
In this blog let’s go “practicality”. In our last blog we discussed some
companies I helped start or was an integral part of. Thinking about this, I decided that there are thought
processes one goes through, or should go through, from the onset for success. We will look at some. Every situation is different, like a
chess or backgammon match, but unless you have some basics down, you are going
to lose. As you improve your basic
business skills you also need to hone your instincts and perceptions of
situations… impulses, gut feelings.
A quick comment, and “pet peeve” of mine is the incomprehensible
stock market values. I believe
that the highest prices in history behind our markets are due to Wall Street
and current government. Take your
pick, both very dangerous at advising people and supporting falsehoods in
valuations. Over and over we have
discussed the importance of “free markets” and historical standards. We
overlooked these in 1929 and 1999.
We have again. The
historical benchmark for the DOW Industrials or S&P 500 is a price to
earnings ratio of approximately 15 to 1, and I have mentioned in blogs how we
determine that ratio. This past week these markets and the NASDAQ are all well
above, with the reality that prices are going up as earnings of companies are
coming down. That is the trend
that will exist in 2019, here and worldwide.
Now, for our blog material. If you are going in as an employee of a company you may
never need this information unless you desire to escalate into management, or
decide to start your own company.
As in everyday life business has both variables and uncertainties. I look at the culmination of variables
as uncertainties. The farther we
can go with eliminating variables, the more likely the success in life or business,
and fewer uncertainties.
The first advice I can give you is, “eliminate” the “big
ego”. In reality if you want to
progress in a company you better become a “team” player, with new and
transformative ideas that will be noticed by management. If you go against your superiors, or
agitate them, you most likely will find yourself out on the street. Realize that you are no better than
anyone else in a company; you just hopefully have a needed set of skills for a
specific position, this may even be the CEO. When we built the oil company, Energetics, Inc. a
fundamental proposition was that no one was better than anyone else, and all on
a first name basis with respect.
We built a wonderful, powerhouse team of 300 people before going public
on the New York Stock Exchange.
The janitor or receptionist equaled any person in the company. You may equate this to quarterback, Tom
Brady. Yes, he is a great
quarterback, but without the team he is nothing.
Next, starting a company I have my own fundamentals:
- Don’t
take in a partner unless absolutely necessary. A relative is most likely the worst, with possible ill
feelings lasting forever.
Eventually, one partner may be doing more work than another. During
tough times one partner may “take” money (a kind expression for stealing!). A money partner may want controlling
interest. With that control of the corporation (more than 50%), they “own” you.
- As
mentioned, you can’t do “it all” by yourself. Have a plan for strong and needed alliances and
associations, and how the formula will play out. The old expression, “plan your work, then work your plan”,
but so much more. Associations can
be gained or dropped as needed, it is tougher to end employment these days with
employees.
- Be
hands on. This is a difficult
balance act. To grow you need to
trust and delegate. Many of my
losses came from spreading myself to thin, and losing control over assets and
money. My recommendation would be
to pick up your computer and learn about the various areas and industries where
you are putting your money. At one
time, I had 8 financial licenses ranging from real estate broker’s license, 4
securities licenses, and life, health and disability insurance licenses. The latter licenses and credentials to
make me appear smarter than I am with Trust Company of America, and be a member
on a lecture series that they sponsored.
- Learn
as much as possible from “the ground up”.
The first company I started was in February, 1971, and that being
Denver’s first organic health food restaurant. I put up the money and wrote the business plan while living
and working in Vail, Colorado. When I went to Denver I was in the restaurant; dining room,
kitchen and reviewing the accounting.
I wanted to witness the strengths and weaknesses first hand, therefore I
sampled all functions from waiting tables, cash register, cleaning, washing
dishes, cooking, etc. Very
important to connect with your market, the vendors and the customers as “they
pay the bills”!
- Hire
and associate with people you can get along with, but it is not necessary for
them to be your friends. They fill
gaps, or weaknesses. Look at
“right brained/left brained” thinking and balance the two. Friends, Jay and Bob Pritzker didn’t
follow another friend, Gail Browning, on this advice with their Braniff
Airlines, and eventually the company went under.
Now, let’s take my situation starting the private equity
firm, L. R. Nicholson & Co.
After taking Energetics, Inc. public I was retiring from that endeavor
and going out on my own. Yes, Energetics
enabled me to have enough money to do so and start a very nice company with
fairly elaborate offices using my own money and no debt. Few people are able to do this. Over a year in advance I started
formulating this company and needed associations with two other
entities/people, (filling weak gaps), those being Jim Galbreath and John Keller. Jim was a good friend and roommate from
college days who became a financial expert. Jim eventually became managing director of the investment
firm Nuveen Asset Management. John
Keller was from New York City and owned Corinthian Capital, an asset management
firm. John also invested with
Energetics. He was a financial
advisor to the wealthy, the likes of the Bloomingdale and Bessemer families in
New York. Leaving Energetics on
solid ground, that company was also a backer in my endeavors. I had a stable of
over 900 limited partners from Energetics, all well healed millionaires. Energetics permitted these investors
into their limited partnerships via my security licenses, thus a carried
interest in drilling projects for my company.
So at this juncture, I had money issues resolved and added
financial expertise to review deals and bring in opportunities for investment.
I added an accountant, Bob Kihm, out of Ernst and Young who remains my CPA
today, receptionist, secretarial and a couple associates for oil and gas
investments; one a senior “land man”, the other a senior geologist.
As you start your company, reality of weaknesses and gaps
appear. With Jim Galbreath’s The Rockies Fund, a public venture capital firm,
and my private equity company it was “deal flow”. We needed to review more “good” deals, plenty of mediocre
and poor deals out in the market place!
It takes employee time, thus money to sort through deals. Jim and I had more leased space (in a
new high rise building, the Boetcher Building) than we needed so we reached out
to a respectable, small accounting firm, Scanlon, Cordes and Rieck to join
us. This solved a great deal of
this weakness on deal flow as they were the accountants for many a small
business in the Rocky Mountain Region needing our expertise and money. See how this comes together?
Now, let’s apply more thinking and using more applications
in the thought processes. At this
point our three companies are up and going. In the last blog, I mentioned Amoco’s Certi-Care and Shell’s
Auto-Care programs along with Data National Corp. and Warranty Service
Systems. Scanlon, Cordes and Rieck
brought in a gentleman, Bill Jones.
Bill was about 50 years old, and one of the most seasoned and respected
operation people with major oil companies; on the wholesale to retail
gas/convenience store niches. If
he was ever to go out on his own, this was the time; at the peak of his large
corporate world employment, yet young enough to start his own companies with
our assistance and our contacts behind him. Here is how we thought this through at this stage:
- What
was Bill’s reputation?
- How
well connected was Bill?
- How
driven was Bill?
- Any
characteristics of dishonesty?
- Health
and energy of Bill?
- Management
capabilities?
- Could
Bill lead us horizontally or vertically in other endeavors within these
industries?
- Could
and would Bill listen to our advice?
These are only a few of things we agreed upon before
starting these new companies, and the final answer was to proceed. Next was to match “product”, Bill and
the start-ups with investors seeking such an investment. I brought in the Glore family from Lake
Forest, IL and New York City who I had consulted for in past years. Mike Scanlon brought in Ace Dillon Sr.
and Jr., (Dillon Oil from Wichita, and Ace Sr. was on the board of Kroger
Foods).
We built these above companies quickly to about 30 employees
and were successful. To control my
money I went to various trade shows to learn first hand/ground up. One looks at market share as well as
growing competition. Don’t give
into your standards that once made you successful!
Where were the pitfalls?
- Bill
was a good manager of people. As a
Mormon, Bill tended to “Mormonize” these companies rather than hire the
best. Stay non-partisan.
- After
Mike Scanlon found a “clean public shell corporation” that met our standards we
merged into it and listed on a stock market exchange. Once successful the Dillon family became quite controlling. Money will do that, along with
greed! You may have well
understood your product and lead management, however investigate the
“modusoperandi” and background of your money partners. They have big law firms behind them,
and expect to get their way!
- Bill’s
hard driving work ethic eventually produced a major heart attack. Bill lived,
however many months for recovery, and no substitute for him, his contacts and
business talents. A big mistake
only we could blame ourselves for.
Mandate that the company bring in younger, fresh talent who could take
the role in emergency situations. Note: When you have a hard-driving individual
who is all important to a company, make certain that you take out a large “key
man” insurance policy on the individual paid for by the company.
Enough for this one blog. I can only hope that you got one useful thing or more out of
it. Whether it is strategizing in
sports or business, the key is to remove uncertainties. As you can imagine, you need to go
beyond the physical/book learned to become a winner. Schooling has always afforded limited “real world” knowledge. I was lucky to go to the University of
Denver Business School. A
professor could not teach at the University unless he had already become very
successful in business and taught from a practical point of view.
Remember the old Yiddish expression: “Man plans, and God laughs”.
No comments:
Post a Comment