Fred and Pete Go To Market

Originally published in Flourishing March 2012

I received an unsolicited email recently from the self-described marketing genius, Dan Kennedy.  Dan is a serial entrepreneur and a self-made multimillionaire.  Dan doesn’t have a college degree; in fact, he never attended college.  He inherited nothing from his family, but a strong work ethic.  However, this isn’t about Dan; or not just about Dan.

In his email, Dan tells the story of a seventeen year old kid named Fred, who was scouting for a way to make some money beyond his minimum wage job.  It was 1965, and the minimum wage was about $.75 an hour.  Fred went to see a family friend for advice.  The friend’s name was Pete.

Pete suggested that Fred open a little sandwich shop, and offer food that was less fattening and more healthy than the sandwiches at McDonald’s and other fast food stores.  Pete and Fred formed a partnership, with Pete investing $1,000 and Fred investing his time.  The first store opened in Bridgeport, Connecticut to very limited success.

Fred and Pete were sure they had a good product, so they attributed their limited success to the store’s location, and they opened a second store.  But, the second store also produced mediocre results.  At that point, most people would have given up, but not Fred and Pete.

Fred enjoyed the business so much—and was so confident in his product—that he convinced Pete that they should try a third location, one with more visibility.  And, they agreed that they should spend more money on marketing and advertising.

As you may have guessed, Dan is trying to sell me some marketing ideas, but that’s not really the point of his story.  I’ll get to that in a minute.

First, you need to know that the Fred in this little story is Fred de Luca, and Pete is Dr. Peter Buck.  

The name that they gave their little sandwich shop back in 1965—Subway.

In case you haven’t been counting, there are now more Subway stores (33,749 as of May 2011) than there are McDonald’s. Fred and Pete went to market and became billionaires.  Both are now on the Forbes 400 list of wealthiest Americans.

So here, according to Dan, are the business lessons this story teaches:

Don’t be afraid to collaborate.

Look for ways to do the opposite of what almost everyone else is doing.

Focus relentlessly on your goal.

Don’t let your own lack of money stop you.

There is, I think, one more lesson; and that is that America still offers boundless opportunity to everyone with a well-defined purpose to fulfill.   mh


What Do They Have in Common?

Originally published in Flourishing March 2012.   


Sheldon Adelson

Carl Berg

Stephan Bisciotti

Leon Charney

John Paul DeJoria

Larry Ellison

Alan Gerry

Alec Gores

Harold Hamm

 George Joseph

 Kirk Kerkorian

 Ken Langone

 Ralph Loren

 Carl Lindner, Jr.

 David Murdoch

 Thomas Peterffy

 Howard Schultz

 Kenny Troutt

 Albert Ueltschi

 Oprah Winfrey

They range in age from fifty to ninety-three.  Most, but not all, were born in America.  They are all alive today, and still actively engaged in things that they love to do. 

Some didn’t finish high school. Others dropped out of college.  Only a couple of them have MBA’s.  I’ve listed only twenty, but there are many more.

What do they have in common?

Yes, they are all in the One Percent; but, that’s not the right answer.   The right answer is that every one of these people started from absolutely nothing and made themselves into billionaires.  mh


A Notable March Birthday

Originally published in Flourishing March 2012.

The American economist James Tobin was born on March 5, 1918.  He received the 1981 Nobel Prize “for his analysis of financial markets and their relations to expenditure decisions, employment, production, and prices.”  

Tobin argued that one can’t predict the effect of monetary policy on output and unemployment simply by knowing the interest rate or the rate of growth of the money supply. Monetary policy has its effect, he claimed, by affecting capital investment, whether in plant and equipment or in consumer durables. And, although interest rates are an important factor in capital investment, they are not the only factor.

Tobin introduced the concept of “Tobin’s q” as a measure to predict whether capital investment will increase or decrease. The q is the ratio between the market value of an asset and its replacement cost.  For example, if an asset’s q is less than one—that is, the asset’s value is less than its replacement cost—then new investment in similar assets is not profitable.

Tobin’s insight was also relevant to his ongoing debate with Milton Friedman (Nobel Prize 1976) and other monetarists. Tobin argued that his q, by predicting future capital investment, would be a good predictor of economic conditions.

Tobin’s portfolio-selection theory is another of his contributions. He argued that investors balance high-risk, high-return investments with safer ones so as to achieve a balance in their portfolios. Tobin’s insights helped pave the way for further work in finance theory. 

James Tobin died on March 11, 2002.  mh

The Essential Heroes: the One Percent

 Originally published in Flourishing March 2012

Thirty-odd years ago, I was working for W. J. Powell Construction Company in Beloit,Kansas.  “Dub” was a wonderful person and a fair employer.  The job wasn’t all that challenging, though, so I would take a book to work, and often used my lunch break to read biographies.  That’s when it started—that little fire in the belly that says, “You can do more.”

 One of the books that I read during that period was Study in Power: John D. Rockefeller, Industrialist, Philanthropist, by Allan Nevins. 

 Born in 1839, John D. Rockefeller rose from the lowest rungs of society to become one of the world’s wealthiest men and greatest philanthropists.  His father was a ne’er-do-well elixir salesman and bigamist, who frequently abandoned his family for months and years at a time.  Notwithstanding, John D. was serious, studious, hard-working, frugal, and well-behaved; and before he was forty, he was a member of the One Percent.

 I mention John D. here, because I want to introduce you to a more recent member of the One Percent—a man from similarly humble beginnings.  The two men have more in common than great wealth.

 Born in rural Oklahoma in 1945, Harold Hamm was the youngest of thirteen children.  His father was a share-cropper, who raised his family in a one room shack, devoid of indoor plumbing.  Harold left home before graduating from high school, and took a job as a pump-jockey (a term of endearment, if you please) at an Enid, Oklahoma gas station.   

Fast forward fifty years: Last November, Harold Hamm was inducted into the Oklahoma Hall of Fame, along with Tommy Franks of Wynnewood; Marques Haynes of Sand Springs; Cathy Keating and Steve Malcolm of Tulsa; Elizabeth Warren of Oklahoma City; and (posthumously) Roger Miller of  Erick.  He still likes burgers from Sonic Drive-In, but Harold is now #36 on the Forbes 400 list of wealthiest Americans.  His net worth is $9.0 billion, give or take; virtually all of which is still invested in finding and producing oil and natural gas.

Ever grateful for his success, Harold’s many generous gifts include a recent $30 million donation for the Harold Hamm Diabetes Center on the University of Oklahoma campus.  “If it hadn’t been for education, I would have never had a chance to break away from the poverty cycle my family and I were caught up in ever since the Depression years.”  (After his initial success, Harold went back to school; and he has never stopped learning.)

Of his induction into the Oklahoma Hall of Fame, Harold said, “It’s a great honor, and it’s not anything I ever thought I would receive … it’s really beyond my dreams. …For this honor to come about right now while I still have some siblings alive, and for them to share this with me, means everything.”

That says a lot about the kind of man Harold Hamm is.  He started in business with a $1,000 loan, co-signed by a friend.  In 1967, at the age of twenty-two, he incorporated his business—a one-man, one-truck oilfield services company—as Shelly Dean Oil Co., named for his two oldest daughters.  His wife kept the books, and as the little company grew, Harold and Sue Ann’s daughters answered the phone.

“Back then it was one day at a time, it was one minute at a time, almost. It was a very meager beginning and we’ve been very fortunate.”

Harold’s little company has done well over the last forty-five years.  At the end of 2010, Continental Resources (formerly Shelly Dean Oil Co.), which is still based in Enid and Oklahoma City, had proved reserves of 364.7 MMboe (million barrels of oil equivalent).    Continental now operates in twenty states and is far and away the largest leaseholder (855,936 acres) and producer (6.9 MMboe in 2010) in the Bakken Shale region of North Dakota and Montana. 

Bakken, which accounted for 44% of Continental’s 14.7 MMboe production in 2010, had been written off by almost every industry expert just a few years ago as not worth exploring and developing—almost every expert, but not Harold Hamm.  According to the company’s 2011 Annual Report, Continental is “on track to triple production and proved reserves from 2009 to 2014”.  Like most businessmen in the One Percent, Mr. Hamm, who still owns 68% of Continental’s shares, consumes an infinitely small fraction of his income, preferring instead to reinvest in his community and in the work he loves to do.

One line that I remember most vividly from my ancient reading of Study in Power was a comment by one of John D. Rockefeller’s associates:  “He sees far ahead of everyone else; and then, he sees around the corner.”  What that man meant was that Rockefeller knew more than anyone else about his industry—because he studied more and worked harder.  Rockefeller nearly always sought the counsel of his associates, but he was willing to accept full responsibility for his business decisions by repeatedly staking his own life and fortune on them. Ditto, Harold Hamm.  That’s why they are the essential heroes—the One Percentmh