It Takes Money to Make Money
“That old sayin them that’s got are them that gets
Is something I can’t see
If ya gotta have something
Before you can get something
How do ya get your first is still a mystery to me”
(“Them that Got” by Ray Charles)
In an earlier column I reviewed Bob Knight’s new book “The Power of Negative Thinking: an Unconventional Approach to Achieving Positive Results.” Knight takes issue with euphemisms like “Oh well, the sun will come up tomorrow” and “Don’t worry, honey. Everything will be all right.” He posits these platitudes as excuses for failure to prepare and execute. According to Knight, worry has lost a lot fewer basketball games than has over confidence.
I have a favorite excuse for failure in business: “It takes money to make money.” This adage is not true. Many times it is used as a cop out to deflect blame for poor performance.
Let me present two personal examples. I had no money in the early 1970s, when partner Bob Schloss and I began to build what was once the largest cable television company in Indiana in terms of cities served. The cable TV industry was a voracious consumer of capital resources. It took truckloads of cash—cash we did not have—to erect towers, purchase electronic equipment and distribute cable television signals throughout cities on wires strung from utility poles.
We raised capital by selling syndicated interests to limited partners. We retained the services of Bruce Jacobson of the accounting firm Katz Sapper & Miller to assist with a prospectus we presented to high-income earners. That population was more likely to invest for the artificial losses provided by depreciation of the electronics, and they could wait for the cash flow that would materialize when the cable systems matured.
On one occasion we were turned down by a physician who said that Ted Sapper, the “S” in KSM, had advised him that he would most surely lose his money. I complained to Curt Miller, the “M” in KSM. “Look, Curt, we paid you guys to help us with the prospectus and now you turn around and advise your clients not to invest.” Miller’s response: “I’ll take a unit.”
In addition, we were the first privately owned cable company in the nation to finance systems with economic development bonds, a concession by the federal government to encourage investment. Because the interest was tax free, the interest rate was less than prime. That allowed us to borrow more money—in fact, 100 percent. Between syndication and tax-free financing, we built the cable television systems without any capital investment.
A second example is the capitalization of The National Bank of Indianapolis in the early ’90s. We sold stock at $10 a share. I purchased shares at the same price as everyone else. However, my investment was not essential. The bank was well-capitalized without my having to put up a single penny. My only compensation for establishing the bank was option grants exercisable within 10 years to purchase shares at the same $10 a share.
If it doesn’t take money to make money, what are the necessary ingredients? The answer to Ray Charles’ mystery is relatively simple: It takes a good idea and the ability to sell that idea to the investing public—and then the talent to execute on that idea. Knight would add that preparation is essential.
There is plenty of money in central Indiana in search of viable investment opportunities, and there are plenty of success stories to prove it. Ask entrepreneurs Bill Oesterle of Angie’s List, Jeff Smulyan of Emmis Communications, Scott Dorsey of ExactTarget and Curt Rector of Arbor Homes how much money they had before launching their companies. There are countless examples.
When I hear someone espouse the Ray Charles lyric, “Them that’s got are them that gets and I ain’t got nothing yet,” I think to myself, “and you ain’t gonna get nothing as long as you wallow in that poor excuse.”•
Maurer is a shareholder in IBJ Corp., which owns Indianapolis Business Journal. His column appears every other week. To comment on this column, send e-mail to firstname.lastname@example.org.