The Billion Dollar Secret

by Rafael Badziag

  If it doesn’t require risk, it’s not an opportunity.

  — Jack Cowin #BillionDollarGoldNuggets

  Kim Beom-Su makes clear that due to social change, our times are predestined for risk-taking. “When you are young, you tend to think getting hired at a good company is the safest way to go, but I think that era has passed. Because working for a good company doesn’t guarantee a secure retirement or any long-term security. Now, it’s an era where it’s very important to take risks and try different things, and from that find what you really enjoy doing and are really good at.”

  There is no success without risk.

  — Mohed Altrad #BillionDollarGoldNuggets

  Interestingly, billionaires don’t see intelligence as a prerequisite for their extraordinary business success. They stress that entrepreneurs are adventurous rather than intelligent.

  This is what Sergey Galitskiy noticed when he had been working for a bank, before he got involved in his own business. “When I communicated with clients in the bank, who were businesspeople, I felt how intellectually weak they were. But I was impressed by the way they think. So these were people not of a smart mind, but rather of an adventurous mind. And this made a big impression on me.”

  Prepare to lose if you want to win.

  — Ron Sim #BillionDollarGoldNuggets

  Don’t Let the Fear Stop You from Doing Things

  Courage is one of the most important character traits for an entrepreneur.

  Fear of failure is a huge force, so use it to do it right instead of having it limit you.

  If you don’t take risk, you will never learn.

  — Ron Sim #BillionDollarGoldNuggets

  Jack Cowin’s father kept telling him he could achieve what he wanted if he wasn’t afraid of difficult challenges and was brave enough to follow his dreams.

  Chip Wilson had the courage to take the greatest risk of his life when he started Lululemon. “I had two children. When you start to bet on the children, that’s the tough part.” Yes, he had some capital after he sold his previous company. “I had a house, I had security. I could’ve gotten a job as a barista at Starbucks, and anything would’ve been fine.” But he put all his money into the company, mortgaged the house, and kept borrowing every cent he could to put into it. “I really was risking. Could I pay my alimony to my ex-wife? Are my kids going to get fed? It was a big concern.”

  Entrepreneurship really means taking risks.

  — Hüsnü Özyegin #BillionDollarGoldNuggets

  Act despite the fear of rejection. You can’t please everybody. If you do something, there will always be people who don’t like it.

  Naveen Jain told me these insightful words when we met in the Shelbourne Hotel in Dublin:

  When you are a people person, you put yourself out there; you’re always afraid of being rejected. And then being an immigrant, obviously my English is not as good. Sometimes people look at you as if you’re crazy because they don’t understand what you’re saying. So in some sense, you’re always afraid that people may not like you.

  But to some extent, I have gotten over it. I have realized that you can’t get everyone to like you. If you want everyone to like you, you have to do nothing, be nothing, and stand for nothing. But if you do something, there are people who will hate it. So you know what? It doesn’t matter.

  Every company starts with a big risk.

  — Rafael Badziag @BillionairePal #BillionDollarGoldNuggets

  Are you afraid of ridicule? Get rid of it. Billionaires don’t hesitate to do things that might look foolish or go wrong.

  This willingness to fail is what Tim Draper considers his success secret.

  I think if I am willing to take a chance on something and willing to either lose my money or get embarrassed or lose face or have some problem and still be willing to wake up the next day and go to work, I think that is the strength of becoming successful. I think you have to be willing to do something that might look stupid and might fail.

  That’s how he became a legendary Silicon Valley venture capital investor.

  Our business is remarkable in that way because we often fail. We fail, in fact, maybe more than half of the time in the venture capital business, and still somehow continue to be in the business.

  Now, it’s an era where it’s very important to take risks and try different things.

  — Kim Beom-Su #BillionDollarGoldNuggets

  Billionaires are also humans. They weren’t born the greatest risk-takers, defying all fears. I asked Jack Cowin about what he would have changed if he turned 20 again.

  I’d probably be bolder. I’d probably have taken more risk. The fear of failure makes you more conscious. The fear of debt makes you more conscious. So I would have more confidence in myself that I could find my way through the maze.

  And caution, because you don’t want to go broke. Rule #1 in business: don’t go broke. If you make a mistake, you make a misjudgment; it’s easy to do. We could’ve gone broke a couple times due to high interest rates. The truth is in the restaurant business you’re constantly not that far away from the danger of someone dying from food poisoning if someone did something very mistaken regarding procedures which requires constant diligence. It’s a risk that you live with all the time, so you’ve really got to manage it properly.

  Rule #1 in Business: Don’t Go Broke

  We were sitting in front of Jack’s house and he expanded on this topic, warning against betting the farm and giving me some of his life lessons:

  You don’t have to go for broke every time. Don’t bet the farm. Things go wrong with the best-laid plans. Spread the risk. In baseball terms, you don’t have to hit a home run every time. Singles and doubles will get you there. Babe Ruth hit the most home runs; he also struck out the most. So you don’t have to take huge risks to get there, everything in moderation. Don’t underestimate the power of compound interest.

  The number one priority of a CEO is to make sure that the company stays in business and survives. What threats can take you out of the game? What decisions, if wrong, could be terminal? What is your margin of error?

  Accept that without risk, and the possibility of failure, success will be limited.

  You can’t please everybody. If you do something, there will always be people who don’t like it.

  — Rafael Badziag @BillionairePal #BillionDollarGoldNuggets

  Risk can kill your business, so don’t bet the shop, protect your downside.

  Manny Stul, the World Entrepreneur of the Year 2016, likes risk like nobody, but he wouldn’t risk everything even on a bulletproof venture.

  I like taking risks. It’s in my nature. But don’t bet the farm on anything! I don’t care how good it is and how it appears to be a no-brainer and how it appears to be guaranteed.

  I asked him if that would also be the case at the beginning, when you don’t actually have anything.

  Well, then what have you got to lose? If I lost everything when I started, there wasn’t much to lose. I was probably taking bigger risks then. But certainly nothing that would ruin my life, if you know what I mean.

  And yes, Manny was betting the farm at the beginning of his first business with gift articles called hurdy-gurdys that were manufactured in Japan.

  I brought some in, and they were very successful. Round about end of April, when I was going to place another order, they said, “We have huge demand. We can supply you whatever you want, but you have to get us the order now. And the order you give us now is all the stock you will get for Christmas. You won’t get more, you won’t get less.” I didn’t sleep for three nights, because I knew I had a winner, and I didn’t know what the potential was. I put everything into that. The whole lot, all the liquid assets that were available to me at that time. I didn’t have anything. If I had a house, I could’ve possibly bet the house, but I didn’t have one.

  It paid off well for Manny, but as his company grew, he paid attention not to take risks that could ruin him.

  Yo
u can’t get everyone to like you. If you want everyone to like you, you have to do nothing, be nothing, and stand for nothing.

  — Naveen Jain #BillionDollarGoldNuggets

  You should always have a margin of safety. It’s essential to never run out of cash.

  Hüsnü Özyegin, typically for somebody with a banking background, is very conservative about protecting his downside. For him, “assessing the downside is really, really important.”

  Entrepreneurs are adventurous rather than intelligent.

  — Rafael Badziag @BillionairePal #BillionDollarGoldNuggets

  When I asked Frank Hasenfratz what he avoids in business, he answered with just one word: “overextending.” Don’t shy away from risk, but don’t stretch your business too much financially. It could break and go down under the burden. “You may be lucky two times or three times, but one day you may stretch too far. So I take risk every day, but the risk I take I can afford to lose. It’s really important to keep your debt so that it’s manageable.”

  You have to be willing to do something that might look stupid and might fail.

  — Tim Draper #BillionDollarGoldNuggets

  Watch the Risk/Reward Ratio

  One of the most important qualities of an entrepreneur is being able to assess risk. That’s how Jack Cowin sees it: “Risk can kill you. So judgment in how much risk to take, when, where, that is all a very fine line. Because without risk, you’re not going to go too far. You have to take risk. It’s part of the deal. If you don’t have some risk, you’re wasting your time.”

  Rule #1 in business: don’t go broke.

  — Jack Cowin #BillionDollarGoldNuggets

  As Lirio Parisotto puts it: “I need the risk. If I’m alive, I’m at risk to die. You risk all the time. But if I make a choice in business, I need to be able to afford it if things go wrong.”

  Cho Tak Wong, the World Entrepreneur of the Year 2009, recommends to “do an analysis and estimate what risks could be in a given project,” and take only risks that you can deal with.

  Accept that without risk, and the possibility of failure, success will be limited.

  — Jack Cowin #BillionDollarGoldNuggets

  It is also foolish to take unnecessary risk that doesn’t bring you closer to your objectives. I asked Jack Cowin what he avoided in business. His answer: “Unnecessary risk. Risk is necessary, but don’t do things which are superfluous to what the end game is.”

  Don’t bet the farm on anything! I don’t care how good it is and how it appears to be a no-brainer and how it appears to be guaranteed.

  — Manny Stul #BillionDollarGoldNuggets

  Billionaires look at the potential of things, not only at the downside.

  Many billionaires, like Kim Beom-Su, always “choose opportunity over risk.”

  Jack Cowin warns of the dangers of too much education: “One of the problems of getting too much education as an MBA is you find out all the reasons why you shouldn’t do something. You become too cautious. You find out all the things that can go wrong. You measure the downside much more than you do the potential.”

  Assessing the downside is really, really important.

  — Hüsnü Özyegin #BillionDollarGoldNuggets

  So what is the winning formula with regard to risk?

  It’s quite straightforward: take calculated risks with the best risk/reward ratio instead of “betting the shop.” Or in other words: take the risks you can afford that have the greatest upside and the smallest downside.

  One of the most important qualities of an entrepreneur is being able to assess risk.

  — Rafael Badziag @BillionairePal #BillionDollarGoldNuggets

  The risk perception is subjective and doesn’t necessarily correspond to the amount of money in question. Dilip Shanghvi risks literally billions every day, but he is unfazed by it. “People perceive that I take big risks, I honestly don’t really take big risks. I’m able to manage risk effectively. So I have an internal mechanism of rationally distributing risk, and I always appoint risk with the return.”

  It may sound pretentious to you, but in reality it’s quite obvious. With growing size, your approach to risk changes. Ron Sim explains it clearly: “As I age, I become more cautious, I become more careful. When I was young, I would do it first. Now I consider it a bit more. There’s more to lose now, but now I’m more prepared to play bigger games with bigger stakes.”

  Without risk, you’re not going to go too far. You have to take risk. It’s part of the deal. If you don’t have some risk, you’re wasting your time.

  — Jack Cowin #BillionDollarGoldNuggets

  Business is a continuous risk-taking.

  Tim Draper internalized risk into his business to the degree that he even wrote a song, “Riskmaster,” a eulogy on entrepreneurship. As a seasoned venture capital investor, he developed strategies to peg his risk. He used these strategies when he became an early investor in Tesla even before Elon Musk took over as the CEO, as the following story shows.

  I went out and I got this ride in an electric car that this guy had put together with PVC tubing and just jerry-rigged together. His name was Ian Wright. He put me in the car, we took off, and I couldn’t believe how fast it was or how fast it stopped. So I got very excited about the idea of an electric car. I thought, Oh my gosh, these lines are going to cross. You’re going to see electric cars getting better than the combustion engine because they’re so much faster and they stop better and they perform better.

  Later, Tim found out that Tesla solved the problem of exploding batteries that killed Fisker, an early electric car. He met Martin Eberhard, the founder of Tesla, and made a small investment.

  I wanted to make a big one but my partners were smart; they said, “Just make a small investment, because this is going to be capital-intensive.”

  Later, Elon Musk came in with $10 million when the company was out of money, and he said “I’m going to take it over,” and everybody said, “Yeah! Awesome.”

  If I’m alive, I’m at risk to die. You risk all the time. But if I make a choice in business, I need to be able to afford it if things go wrong.

  — Lirio Parisotto #BillionDollarGoldNuggets

  “Indecent” Offers, Audacious Moves

  Billionaires are not scared to make others “indecent” business offers.

  In 1986, the 28-year-old Tim Draper was just out of business school. “I went to the board members of Activision at Sutter Hill Ventures and asked to become the CEO, and told them that as CEO, I would use the public stock to buy up Microsoft and Lotus and a bunch of other software companies that were all private and valued low. In retrospect, they should have done it, but they looked at me with cocked heads and politely showed me the door.”

  And Manny Stul, the World Entrepreneur of the Year 2016, follows the same strategy:

  I have always had and still do have the attitude of “ask for the world and work your way back from that” in negotiating. So there was no limit to what I ask for because you never know for sure how other people will react until you begin the process.

  Take only risks that you can deal with.

  — Cho Tak Wong #BillionDollarGoldNuggets

  Hüsnü Özyegin, now the wealthiest self-made man in Turkey, was the president of the student body at Oregon State University. He made a bold move and invited Senator Robert “Bobby” Kennedy, the American president’s brother, to visit OSU during his trip to the western states. Hüsnü wrote him a letter and, surprisingly, he accepted. This audacious move paid off big time for Hüsnü, as he was then personally hosting this rock star of a politician at his university. Hüsnü showed me with pride a picture of him with Robert Kennedy on stage together. But it paid off even more in the future, when Hüsnü applied for Harvard Business School.

  I was actually quite surprised that Harvard Business School accepted me, because I barely graduated from Oregon State with a grade average of 2.17. You have to have a 2 average to graduate from school. But then again, the president
of the university wrote my recommendation letter. He told me that it was the only recommendation letter he wrote for anybody that year, for the graduating class of some 3,000 students. [laughs] I stuffed all my photos with Bobby Kennedy and my student body presidential campaign material into my application envelope.

  Harvard is a business school that requires four years’ job experience, but despite those very low grades and no job experience, they accepted me.

  Apparently, the pictures with Bobby Kennedy made an impression on the admissions.

  Risk is necessary, but don’t do things which are superfluous to what the end game is.

  — Jack Cowin #BillionDollarGoldNuggets

  To achieve big things you often have to take a leap of faith. You should try to do things far beyond your comfort zone. Billionaires take on outrageous challenges or even try to go for the seemingly impossible.

  Naveen Jain founded Infospace when there were no smartphones, but he was on a mission to build services for mobile Internet. “People thought it was the absolutely craziest thing to do and that it would never happen. When I was creating an information commerce business of selling information on the Internet, they thought that was the absolute craziest idea. And now, think about it, I want to go to the moon and they think it’s a crazy idea. So point is if people don’t think what you’re doing is crazy, then you’re not thinking big enough.”

  Look at the potential of things, not only at the downside.

  — Rafael Badziag @BillionairePal #BillionDollarGoldNuggets

  Don’t be scared of big numbers. If you do one BIG thing, people will start approaching you.

  For Tim Draper, one of the turning points in his career was the Hotmail deal. Hotmail was one of the first web-based email services, and Tim was the first investor in it. It was one of the fastest-growing services of the 1990s, and quickly became the largest such service in the world. Tim sold Hotmail just 1.5 years after launch for $400 million to Microsoft. “That was a big deal. It put us on the map. It was a big enough media deal that they started to focus on us. That ended up being a really good launching pad for us; we were able to raise the next fund fairly easily. We put that to work in the Internet. From then to five or six years from then, we were near the top of the heap. That was really very exciting.”