Business Advice from a Billionaire

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“What do you think, Julie Ann?” was posed to me in a school administration building in downtown Charlotte, NC where I appeared with my dad for a plea to attend the high school of my choosing. Having endured the endless, chaotic crossfire of school integration, an odyssey with school lines drawn and redrawn in perpetuity to achieve racial balance and ever-elusive school equality, I didn’t think anyone, especially school board members, would really care what a 15-year-old girl thought. I knew him only as the one who asked my opinion.

Many years later, I heard an apparel company executive refer to him as someone who had “more money than God” and more years still, as one of Forbes’ richest people in the world. His net worth is pegged at over $2 billion and unless you hang around North Carolina (USA), you’ve probably never heard of him. But he’s got some business advice to pass along and I thought I’d summarize it for you here.

His name is C.D. (Dick) Spangler Jr. and he’s currently retired but has had numerous business ventures. In addition to being a member of the Charlotte-Mecklenburg Schools board (where we met), he also served as President of the University of North Carolina system.

Here's a recap of his education and career, based on an interview with Mr. Spangler that appears on the Harvard Business School (HBS) Entrepreneurs site:

Education

• BA, University of North Carolina-Chapel Hill
• MBA, Harvard Business School

Career Timeline (highlights):

• Growing up, helped with his dad’s construction firm, which was started during the Depression
• Took over and ran the family business of developing property into neighborhoods and building homes but competition was fierce and margins slim so exited that business
• Changed business from single-family residential development to the design, construction, financing, and leasing of apartments and warehouses
• Started designing, building, financing, and running motels; planned to go public but the major source of motel guests (the traveling salesman) dried up during the ’72-’74 recession
• Joined the board of Bank of North Carolina (a bank his dad and others had started to obtain funds for construction and other projects) after it became insolvent due to mismanagement
• Led bank turnaround from insolvency to its sale to North Carolina National Bank/NCNB, then NationsBank, now Bank of America

There were other investments in publicly-held and private companies, such as the one that my business acquaintance ran. It seems that his dad’s entrepreneurial spirit and money ignited the spark of business ownership and investment for Mr. Spangler, which led to significant wealth.

Here’s business advice taken from the interview (transcript in PDF):

1: Make your mistakes when you’re young so you can learn and recover from them.

“There is a learning curve in making decisions, and making your bad decisions when you’re young gives you time to outlive them.”

I like the way Mr. Spangler assumes you’re going to make mistakes. He tells a story of one of his first days at HBS in which a classmate is berated for not making a decision despite the fact that enough information is available. The approach instilled by his professor is to determine alternatives and choose the best one.

Getting feedback (immediate and longer term) from real-life choices can enable you to develop a decision-making model. Even so, at some point, you may make a bad decision with negative consequences; if you’re young when you make mistakes, you can recover your losses and use your new-and-improved judgment to yield better results.

2. Leverage wisely.

“We were very highly leveraged, but there was nothing particularly wrong with leverage since the properties were well located, the rents were low, and the interest rates were very low.”

Here’s the idea: borrow at interest rates that allow you to invest in a business that will deliver returns higher than the interest rate. (Nora covered leveraging in an earlier post: Borrowing to Invest:Helpful or Hurtful?)

There’s an implication that leveraging can be foolish. In this scenario (borrowing at low interest rates to build apartments and warehouses, offered at attractive rental prices in good locations), the cash flow from rent income seemed to be nearly guaranteed and the good location meant not only steady rental income but also long-term prospects for resale.

You won’t always know if an investment will yield higher returns than your borrowing rate but a good sense of where interest rates are heading and knowledge of market conditions will help you to make leveraging decisions.

3. Know what the worth of the business (or item) that you want to sell.

Mr. Spangler turned around an insolvent bank (Bank of North Carolina), generated a positive income stream, and got it ready to sell. He didn’t want to be a banker but did want to get a good price for his shareholders. He researched the going price of banks and found the typical formula for bank acquisitions: Price = 1.8 x book value or assets. (See my discussion on bargaining by knowing the worth of an item.)

Though he planned to sell the bank, he was taken aback by an urgent visit from Hugh McColl, then president of NCNB-now Bank of America, who traveled via a private plane to the West Virginia mountains where Spangler was spending a couple of days with his family. Their conversation went something like this:

McColl: I’ve been authorized by my board to buy your bank. What’s the price?
Spangler: 1.8 times book.
McColl: That is a little high.
Spangler: I don’t think it’s high because that’s what banks are selling for.
McColl: Well, I was told to tell you that was too high…let’s work out the details.

Mr. Spangler’s stake of Bank of America are now worth over $1 billion (based on November 27, 2007 market price for 32 million shares).

4. Get rid of lousy leaders and ineffective managers.

“…when people are making mistakes in running an organization, they should no longer be part of that organization.”

Note that Mr. Spangler says to get rid of the ones who are running the organization not the people who are working for the organization.

6. Hire people who are smarter than you, especially those who have talent in specialized fields.

“People sometimes have difficulty employing people who are smarter than they are. I think that’s a terrible mistake because you can still supervise people who are smarter than you are. As a matter of fact, every person you hire ought to be very good in a certain field and be brighter than you are in that field.”

If you are a hiring manager, you will likely feel safe with the people who aspire to be the best in their respective fields but have little interest in becoming CEO or even managing a department. You may be intimidated by those who want to advance and even avoid hiring them, which may be comforting in the short term but not beneficial in the long term. You want to create and/or work for the best organization possible so it makes sense to hire the best people.

7. Don’t hire or hang around people just like you are.

“You need to tolerate surface differences in order to help people focus their talents on what needs attention. One of the weaknesses of some people in administration is that they want people around who look, act, and think like they do. That’s a recipe for disaster.”

Mr. Spangler considers diversity (in thought, action, and appearance) not a corporate initiative but rather an essential to avoiding disaster and, by inference, to realizing success.

8. Prioritize your challenges.

“I’ve come to the conclusion that having a single problem is overwhelming. I think that having ten problems is easier to handle since you can move from one to the other as you make a little progress, take a break when you’re not exactly sure what to do, then come back to it…You also learn how to put things that are more important to the front of the line so that you spend less time on things that are less important, or you defer those things until a time when you can give it better attention.”

There are some problems that don’t resolve themselves within an hour or day or even a week, contrary to what I may have learned from watching television sitcoms. So, the idea of deferring a decision seems reasonable; I like the word deferring which connotes waiting until the right time as opposed to delaying, which may indicate unwillingness or inability to make a decision.

9. Look soberly at the numbers from the real world not what’s on your projections.

“…entrepreneurs…have a tendency to believe the projections on their spreadsheets rather than the reality of a situation….There’s a tendency to reject what the market is telling you in favor of what’s happening in reality.”

It’s disheartening to learn that your great business idea isn’t generating the revenue you thought it would and your operating costs are higher than anticipated. You realize that you may need to apply more effort or give the business more time to succeed. But if a concept is not accepted by the market and isn’t producing the income or returns you projected, then your plans and projections need to be adjusted.

10. Get financing for business ideas if you want to earn a return on your investment.

Entrepreneurs “should know that even if they have a wonderful business idea, if they don’t have financing, they won’t be able to turn a business into something that will deliver a return….Financial stability and reliable sources of financial support are essential.”

Now, I know many of you are thinking that you can start a business in your garage or basement, fund its growth from sales, and keep plowing money back into the business to fuel its growth; and, from one perspective, that seems like a pretty good idea. You keep your risks low and all profits go straight to you rather than investors/owners or the bank.

But there’s a difference between generating income that is equal to a salary and creating a business with an ongoing source of revenue not dependent on one person and with value derived from assets. If you have the right kind of financing, you can focus on generating sales and reaping profits rather than figuring out how to meet payroll expenses or fund inventory purchases to fill orders.

11. Let someone else be first to come up with a solution so that you can second it, and make everyone feel that you’ve made a good decision collectively.

“Being the quickest to have the answer is not necessarily a good characteristic. You may have the answer but it’s a lot better to let somebody else come up with the answer so that you can say, ‘I really like your idea…You know, what you said really makes good sense.’”

I’ve been in meetings and involved in groups where I’ve made what I think is a great suggestion, and no one seems to value my input. Later, either the same day or in subsequent conversations, someone else makes the same suggestion but now it is considered a brilliant idea. Still, if I am really part of the group, either as a member or leader, I need to be focused on moving forward and not worrying about who gets credit for the solution to a problem. Watch and see if ideas are more accepted when they are seconded rather than when they are first proposed.

12. Solicit the opinions of others.

“What do you think, Julie Ann?”

Forbes mentions that, as UNC President, Mr. Spangler often ate lunch with students to learn about campus life. Finding out what others think is a great way to divine the source of problems and often uncover solutions. I've heard this advice from many businesspeople (who talk with customers, visit factory floors to speak with production workers, etc.) but I thought it was worth noting that listening to other people, even the youngest and least influential, might help you become a billionaire.

Epilogue: In response to his question, I explained why I wanted to attend the high school closest to my home rather than the more prestigious high school in Charlotte's most affluent neighborhood to which I had been assigned (due to a recent change in school district lines); I was allowed to change schools the next day; last month, the C.D. Spangler Foundation announced a $4 million gift to Teach of America in Charlotte, NC in what seems to be a continuing desire to equalize educational opportunities in the public school system.