One of the most useful classes I ever took was an MBA elective course called “Entrepreneurial Perspectives”. I think I’ve mentioned it a time or two on this blog. The class had a tenured professor who was nominally in charge, but most of the class consisted of lectures given by Larry H Miller (a very succesful entrepreneur out there in Utah, best known for being the owner of the Utah Jazz basketball team), as well as several guest lectures by other local entrepreneurs. Probably 50-60% of the actual lectures were Larry telling us his life story (from a business perspective), talking about all the various things he learned along the way, the deals he made and how they came together, the personal/family impact of being an entrepreneur, some words of wisdom for the rest of us, etc. It was a lot of fun, and quite educational.
One of the concepts that he talked about quite a bit was that of establishing a “base”. Now, my lecture notes from that class are packed up in a box under Jonny’s crib, and the concept is a little bit abstract, but I think I can give a quick explanation of what I mean by a base.
This probably isn’t the clearest defintion, but it will do for now: A base is what gives you the peace of mind to take risks and deal with the ambiguity of entrepreneurship.
Ambiguity and entrepreneurship go hand-in-hand. You never know for certain what will happen (and if you think that you do, or that your PhD proves you do, you’re in for some nasty surprises), and in many cases even if you pull off your idea flawlessly, outside effects beyond your control can often snatch defeat from the jaws of victory. Now, as I mentioned before, this idea is a bit abstract, and probably has meaning on a whole bunch of levels. I’ll try and give a few examples:
A lot of the business that Larry does revolves around auto dealerships. In a way, those dealerships now form the “base” for many of his other projects. He could have never put together the $100+M deals to buy the Utah Jazz, or to build the Delta Center (or Jordan Commons) if he hadn’t already had a succesful track record, and a very well established base in the form of dozens of succesful car dealerships all over the Rocky Mountains. By having those businesses that were solid, dependable, and continuously growing, he was able to get the capital (and take the risks) neccessary to do some of his riskiest (and highest payoff) projects.
Another thing he did, on a more personal level, was after he had a few succesful car dealerships, he took the money he had, paid off his house, and car, and set aside enough money to live off of for a year or two. In all of his business deals since then, he’s adamantly refused to touch any of the equity in his home, or car, or that nest egg. That way, even if everything fell apart (Larry probably has a net worth 2-3x what Elon Musk has), he could walk away from it, pick up the pieces and start again. Even if he got hit by a bus tomorrow, his wife and family would be ok and able to support themselves. Having that “base” established, Larry can run his business in the way that makes the most sense to him, knowing that no matter what happens, he actually can walk away at any point if he has to. His wife doesn’t have to worry that if his latest business deal goes through that they’ll get kicked out of their house. If my experience is anything to go by, I think it’s safe to say that many if not most women really value security. Especially when you have kids, having some buffer or “base” to shield you from some of the ambiguity of business life can make a huge difference in how much stress there is at home.
To take a more space related example, look at XCOR. If I were to guess at what XCOR’s base is, I’d have to say their contracting business. By now, XCOR has built up an excellent reputation for being a go-to company for space propulsion development work. They have good relations with several government agencies and private companies. Those contracts help them keep the doors open, helps them develop technologies they need for their end goals, and provides at least some buffer from the uncertainties of the suborbital market. That base amount of money has allowed them to do several internal R&D projects like their original LOX/Methane work, and their original composite LOX tank work. Without a fairly steady base of contracting work (both government and now private too), XCOR probably wouldn’t even be around, much less be well along their way to getting enough money and enough technology sorted out for their Xerus vehicle.
I’ll go into some of my thoughts down the road about what you can do once you have a firm base, and why such a base is needed in space development, but I figured that I ought to at least try to explain the idea, and give a few practical examples before going further.
Does that make any sense?
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