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FOOL ON THE HILL: An Investment Opinion
The Power of "Business Commandos"

What distinguishes a commando employee isn't technical skill but motivation -- the sheer joy they take from doing what they love. This passion and drive can manifest in non-technical subjects, from van Gogh's need to paint to Steven Spielberg's directing. When it manifests in business-related skills such as marketing, finance, or management, "business commandos" can create extremely lucrative investment opportunities.

By Rob Landley (TMF Oak)
September 25, 2000

(This is Part Five in an ongoing series that began in July. Part Four, How Xerox Forfeited the PC War, ran last week. Here are links to Parts Three, Two, and One.)

The importance of commando employees, hardworking and dynamic innovators, is the importance of individuals. The Walt Disney Co. (NYSE: DIS) exists because of one man, a mediocre illustrator who nevertheless invented the first feature-length animated movie (Oscar-winning Snow White and the Seven Dwarves).

He also had no background in amusement parks when he decided to create Disneyland, yet he did it anyway, and his work has spawned imitators from Six Flags to Sesame Place. His brother Roy helped build a profitable company around his efforts, but Walt was the force driving the company to succeed.

A commando is distinguished by passion and vision, not just technical skill. The basis for Walt Disney's accomplishments wasn't just the ability to come up with ideas, but the drive to pursue and actually implement them. Disney didn't rely on any one set of skills, but was motivated to develop the required skills to accomplish each new goal he set for himself.

Many commandos are highly skilled technical experts, but this is an effect rather than a cause of their success. Their passion for their subject leads them to become extremely proficient, sometimes -- as in the case of Albert Einstein or Louis Pasteur -- against great odds, and long before their efforts were appreciated.

Not all commandos are techies. Some people have a passion and a drive to pursue non-technical subjects. Painters, writers, and musicians who toil in obscurity honing their craft, mountain climbers who climb "because it's there," the unpaid organizers of science fiction conventions: All of these people have the commando mindset. Vincent van Gogh never sold a single painting in his entire life, but painting was something he just had to do anyway.

Steve Jobs is a marketing commando with mediocre technical skill but a gift and a passion for communicating his ideas convincingly. Apple Computer (Nasdaq: APPL) was founded by two commandos, ubersalesman Jobs and techie commando Steve Wozniak. While "Woz" created brilliant machinery, Jobs convinced a trade show that his handful of college students was a huge organization, and that his organization was the future of the industry.

Soon, such titans as Xerox (NYSE: XRX) and IBM (NYSE: IBM) were dealing with them on more or less equal terms, not because Apple's admittedly "insanely great" technology sold itself to a flock of customers but because Steve Jobs sold them on it. (I examined Xerox and its role in the development of the PC in last week's column.)

Warren Buffett and Bill Gates are business commandos, natural second-wave managers who build titanic corporate behemoths for the sheer thrill of playing business as a game. (The concept of business "waves" was discussed in Part One of this series.) Anyone motivated by money or the desire for material gain would at some point be satisfied, and in any case greed tends to be more of a handicap than an asset in business.

But those two aren't interested in simply spending their personal fortune. To them, building a billion-dollar corporation is like building a sand castle or assembling a jigsaw puzzle: a game, a hobby, fun for its own sake. (Netscape founder Jim Clark's done it from scratch three times now.)

Berkshire Hathaway (NYSE: BRK.A) Chairman and CEO Buffett thinks in terms of profitable businesses, investing profits and allocating capital for fun. To him it's all about growing and compounding assets, like a farmer nurturing his crops. By assembling a stable of profitable business units and reinvesting their profits to purchase additional revenue-generating capacity, Warren Buffett has become one of the country's richest individuals. But to him, it's a bit like gardening with people and office buildings.

Microsoft's (Nasdaq: MSFT) Gates thinks in terms of markets and customers. With him it's not about growing, it's about winning. Deciding how to reinvest profits takes second place to figuring out how to crush competitors, conquer territory, capture revenue streams, and dominate market niches.

Buffett doesn't seem to mind being only the second- or third-richest man as long as he grows his company every year. Berkshire Hathaway is his masterpiece, a work of art he created and continues to improve. But to Gates, you have to be first to win. Gates isn't gardening, he's playing high-stakes poker.

Microsoft was formed by a pair of commandos similar to the pair that formed Apple. The techie commando in this case was Paul Allen, and the business commando was Bill Gates. While Paul Allen and the stable of programmers that collected under him knocked out code, Gates negotiated business deals with Mits (makers of the Altair), Apple, IBM, and Compaq (NYSE: CPQ). Gates played Apple and IBM against each other while simultaneously forming alliances with the PC clone makers who would eventually render both irrelevant. He locked up the PC operating systems niche as the exclusive supplier while the industry was small, and "rode the bear" all the way to the top as it grew. This was his idea of fun.

Techie commandos tend to leave when a company becomes second-wave. Once their job stops being about technical innovation and starts being about money, they lose interest. (Generally, by that point, they have more money than they know what to do with.) Allen left Microsoft in 1983. Wozniak left Apple shortly afterward. These days Paul Allen is the venture capitalist behind, among other things, high-tech start-up Transmeta. Woz has a foundation to put computers in schools.

But business commandos can continue to pursue their goals in second-wave and even third-wave companies. As the business grows, it can become an even better tool for them to forward their pet projects. If Steve Jobs wants to change the world, a larger Apple helps him market his vision. If Bill Gates wants to dominate his industry, a larger Microsoft can control a larger industry. And for Warren Buffett, growing business units and harvesting profits in the greenhouse of Berkshire Hathaway IS the goal.

Companies run by business commandos can make great long-term investments. Start-ups driven by techie commandos perform wonderfully when they're small, and can be great foundations on which successful second-wave companies grow. But when the company starts caring more about growing profits or protecting territory than breaking new ground, the techie commandos leave. They can't be the driving force of the company after they leave.

Business commandos have an easier time finding a place at larger companies. This is why their tenure doesn't automatically end when the corporation matures from innovative start-up to money-hungry giant. Managing the flow of cash, products, and market perceptions is itself inherently interesting to these folks, and larger companies can sometimes give them an even better environment to exercise their skills -- as long as they're in charge. Yes, investors in well-led companies need to realize the importance of the individual. Will General Electric (NYSE: GE) be a good investment after Jack Welch retires? Was IBM a good investment before Lou Gerstner? The world has seen Apple without Steve Jobs, and Berkshire Hathaway before Warren Buffet wasn't remotely the same company.

One person can make a very big difference. Most of the time, in fact, that's the only way very big differences ever get made.

-- Oak



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