John Sviokla - The Self-made Billionaire Effect: How Extreme Producers Create Massive Value

Whenever you find yourself on the side of the majority, it is time to pause and reflect.

MARK TWAIN

I magine what Atari might have achieved in the early 1980s if Steve Jobs had worked inside to develop the first mass-market personal computer? What might Steve Case have done for PepsiCo if he had decided to stay rather than join the gaming start-up that would eventually become AOL? Would Redken have been the first hair care brand to explode the market for salon-quality hair products if John Paul Mitchell Systems cofounder John Paul DeJoria had not been fired for his unconventional sales leadership style? Would Miles Laboratories have succeeded if it had pursued the idea posed by Michael Jaharis, then a young lawyer in its ranks, to proactively brand and market acetaminophen years before Tylenol became a household name? What if Salomon Brothers had kept Michael Bloomberg, or Bear Stearns had exploited the inventive ideas of Stephen Ross?

Jobs, Case, DeJoria, Jaharis, Bloomberg, and Ross, as well as Broadcast.com founder Mark Cuban, Celtel founder Mo Ibrahim, oil-and-gas magnate T. Boone Pickens, and scores of other extreme entrepreneurs all worked for established corporations before they struck out on their own. Some fled corporate constraints. Others were pushed out. Each one became a self-made billionaire. They all built businessesin some cases multiple businessesthat are among the most iconic brands today. The influence of these and the roughly eight hundred other living self-made billionaires is so widespread that few people anywhere in the world can go a day without using, seeing, or in some way encountering the products and services they have created.

But what might their former employers have become if these exceptional value creators had decided to pursue and produce their ideas inside the organizations? Put a different way, why arent existing corporations able to create massive value the way these self-made billionaires have? In so many cases, large corporations had the literal talent necessary do sothe self-made billionaires worked for them.

That latter question is top of mind for todays business leaderssmart, experienced, successful managers who are seeing their organizations pushed to the limits by rapid change. In todays environment all the base assumptions of how to build and sustain value are constantly in flux: What makes for efficient scale? Who are our competitors? Who are our customers? What do they want? Who owns what? Where is the risk? In a recent CEO survey conducted by PwC, more than half of the respondents predicted they would need to change their strategy either incrementally or wholesale in the coming years. Nearly 70 percent of those same respondents said they were concerned about talent issues, and 25 percent did not pursue a clear opportunity in the past year because they believed they didnt have the talent to take advantage of it. The fact that so many self-made billionaires held managerial positions in midsize to large firms before striking out on their own suggests that the survey respondents just might be wrong about this issue. They have the talent but havent taken the time to identify or nurture it.

Taken together, these responses make clear that business leaders are uncertain about how to tackle the particular challenge of continually creating value in todays environment. Throughout their careers these leaders have taken care to cultivate and promote managers with sound judgmentthat celebrated ability to see the world as it is and to make smart, strategic decisions based on reality. Judgment works best when the rules of the game are well established, when the variables are known. But what do you do in a changing world where the variables keep shifting?

To answer that question we decided to look more closely at the leaders and the businesses that have thrived in our era of constant change. Despite the challenges of the day, despite the apparent mismatch between available skills and huge opportunities, there is a group of people creating value at an explosive pace and scaleself-made billionaires. We defined self-made billionaires as those individuals who create wealth of more than $1 billion through entrepreneurial activity; even those who inherited some financial resources or an existing business can qualify as self-made if they expand the value of that resource on the order of 100X or more.

In 2012, there were more than eight hundred self-made billionaires worldwide; they made up more than two thirds of the total billionaire population. Overall, billionaire wealth has grown faster than the world economy, more than tripling from 2 percent to 7 percent of GDP between 1987 and 2012.

Why did we focus on self-made billionaires? Because creating a billion dollars or more in value is an incredible feat. If you have discipline and you work hard, you can become a top-notch accountant or a lawyer. Years of dedication and a little luck might propel you to partner status at PwC or a law firm, or perhaps into the C-suite at a Fortune 500 firm. Do that and you will likely achieve multimillionaire status, but your chances of becoming a billionaire along that path are almost zero. There are clear paths to wealth, but there is no tried-and-true road to megawealth. Billionaires have to do something extraordinary to make it as far as they do. Good luck plays a role, but luck will only allow a million-dollar idea to bring in a million dollars worth of value. Becoming a billionaire requires luck and a great deal more.

Self-made billionaires thrive in an environment of shifting variables. Take Dietrich Mateschitz, the founder of Red Bull, who has generated cultish devotion for a drink that even devoted fans agree tastes like cough syrup. Or Sara Blakely, a fax saleswoman/stand-up comic, who had the all-too-common problem of visible panty lines under her white pants. Spanx, the hosiery company she created to make the product she wanted, earned accolades from self-made billionaire tastemaker Oprah Winfrey and generated explosive growth in an era when hosiery stalwarts were seeing their revenues plummet. Or Joe Mansueto, the soft-spoken founder of Morningstar, who at the age of twenty-three was forced to sift through dozens of mutual fund prospectuses in order to manage his fledgling personal investment portfolio. Surrounded by piles of paper, he thought, Gee, this could be a business. Mateschitz, Blakely, Mansueto, and hundreds of othersthese are the people creating hugely profitable businesses in todays world.